Sunil Jain: Not just the China factor

PERSPECTIVES

What's interesting about the global price rise is that the world has rarely seen anything like it before "" the IMF commodity price index, after rising 30 per cent between December 2006 and 2007, rose another 10 per cent this year. In most industrial downturns, price levels have fallen. Between the peak of September 2000 and the trough of January 2002, for instance, oil prices fell 37 per cent. The reasons for this time's disconnect are many "" commodities are seen as a safe store of value at a time of global crisis; there is a sharp surge in demand from markets like China while growth is slowing in only the developed world; spare oil capacity is now down to an all-time low; the strong demand for bio-fuels has lowered the acreage for foodgrains; the decline in the dollar is making the price rise look worse; the list goes on. The IMF has done some analysis which shows that, while China is a source of much of the increased demand in metals, demand from countries like India and the Middle East are responsible for the huge surge in food demand in recent years. Between 2001-07, for instance, other emerging markets like India accounted for the bulk of food demand and certainly a lot more of the oil demand than China.