Though oil prices have not yet burst, many of the other commodities that were causing global inflation are falling fast. Here is a note from my friend Vince Farrell (of CNBC fame).
Miles driven in March, the last month data is available for, were down 4.3%. MasterCard samples data from gas stations and reports that gasoline purchased on the Memorial Day weekend was 7.6% lower than last year, but MF Global and John Kilduff’s research show that gas pumped may have been 10% lower. Sales of gas guzzling SUV’s are off by a large double digit percentage.Overseas, Indonesia, Malaysia, and Taiwan have started to cut their gas subsidies. They have to. Indonesia’s subsidy was approaching 3% of GDP (the Economist) and 7% of GDP in Malaysia. India imports 70% of its oil needs and the state oil company is projecting a $50 billion deficit. Morgan Stanley figures that the combination of state and central government subsidies add up to 9% of India’s GDP. India has an election next year and is still recognizing the necessity of raising prices (thus destroying demand.) The Indian economy grew 8.8% in the first quarter, but inflation was approaching 8% as well. China’s subsidy is only about 1% of GDP and it’s running a budget surplus so they probably won’t feel the need to take action until after the Olympics, if then.While oil is starting to show signs of a correction, other commodities are running ahead of oil in their price decline. The Goldman Sachs Non-Oil Commodity Index is off 13.5% since mid March. This while the energy index gained 22% even with lasts week’s small correction. Last week copper dropped below $8000 a ton in London for the first time in two months. Zinc was off 7% last week, lead 6.6%, and tin fell 10% to $21,200 a ton from its recent high of $25,500 a ton. In “soft” commodities, rice prices in Chicago fell to their lowest level in ten weeks and wheat continued its significant decline. Corn closed at $5.82 a bushel. Still high, but below the psychologically important $6 level.I continue to guess (hope) that oil will pull back towards $100 which would represent a 50% correction of its huge move up this past year.