Risk of deflation increases after collapse in price of raw materials

Downward pressure between commodities goes beyond oil: gold  has also fallen to  its lowest level since 2010, below $1,150/ounce, coinciding with the end of Fed’s stimuli and the strength of the Dollar.

The collapse in price of raw materials (copper and palladium are also dropping) is partly due to weak global demand. Many experts believe that the economic cycle is not solely responsible for such heavy falls and assert that it may be  due to other elements: from speculative movements to geostrategic issues.

In the case of oil in particular, a price war being aggravated by Saudi Arabia is pushing prices down in the US, which has the consequent effect of increasing the prices for Europe (Saudi Arabia is the world largest oil producer).

Such a strategy aims to combat oil production via fracking, a production method that could make the US self-sufficient in the field of energy. The problem is that, according to experts, this system is expensive and needs a barrel priced at $100 in order to be profitable. OPEC will meet at the end of November in Vienna, but most analysts think that agreement will not be reached with respect to a reduction in the rate production.

However, some oil traders are not so pessimistic, and won´t rule out the possibility of a reduction. The ECB and the European governments are closely monitoring market movements of raw materials.

Everybody knows that, with a low oil price and a rising Dollar, it is very difficult to see an upturn in the inflation outlook.


About the Author

Francisco López
Working for more than 25 years in the world of journalism and communications, Francisco has gained valuable experience at several well-known newspapers such as El Mundo and La Vanguardia. He specialized in economic and financial news before making the leap to the corporate communication sector where he has held several positions: Adviser to the Ministry of Economy, Director of the Bank of Spain’s Communication Department, in addition to his consultancy role at Analistas Financieros Internacionales, where he currently works.

Be the first to comment on "Risk of deflation increases after collapse in price of raw materials"

Leave a comment