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Why Commodity Prices Are Likely to Fall Further

Real interest rates appear to be on a firm upward trend, because nominal interest rates will rise and inflation will fall. Together with decelerating global growth, that could mean that the recent decline in the real prices of oil, minerals, and agricultural products will persist.

CAMBRIDGE – Big movements in the prices of oil, minerals, and agricultural commodities have been among the most salient economic developments of the past couple of years. The sharp rise in commodity prices for much of this period was virtually impossible to miss. A barrel of Brent crude that sold for $20 in April 2020, during the first wave of the COVID-19 pandemic, fetched a peak of $122 in March 2022, just after Russia invaded Ukraine.

Oil was not the only commodity to experience a price surge. The price of copper doubled; wheat more than doubled; and global indices of commodity prices almost tripled from April 2020 to March 2022. And these increases are in dollar terms; prices in euros, yen, won, or other currencies rose even more.

Less widely noted, however, is that the prices of many commodities fell this summer. The price of oil decreased by about 30% between early June and mid-August. The politically sensitive price of gasoline in the United States fell by 20% over the same period, from $5 per gallon to $4 per gallon. The overall index fell 12%.