The Polish economy is losing out on the rise in commodity prices

This week Bloomberg Commodity Index has reached the highest level since 2015. Rising commodity prices are a problem for consumers and business. The Polish economy is losing out on their price increase, while Russia and Saudi Arabia are gaining ground. And the increase crude oil prices by $ 10 translates into an increase in inflation by about 0,2 pp

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Inflation has taken over the world

Everything is getting more expensive in the world today. Commodity prices continue to rise due to the rapidly recovering demand after the pandemic, amid limited supply, caused by a decade of underinvestment in this sector. The Bloomberg Commodity Index, a broad index based on futures contracts for 23 different commodities (including energy), metals and commodities, hit the highest levels since the beginning of 2015 this week. Since the beginning of the year, it has already increased by 29,1 percent. Commodity prices are quoted in the dollar, which is currently strong, making commodities bought around the world even more expensive.

Increasing commodity prices are causing major financial flows from consumer countries to those dominated by extraction and production. They gain therefore Saudi Arabia, Russia or Australia. They are losing while Europe and China. Poland is also losing because fuels account for 5,6 percent. of our imports and only 1,7 percent. exports, other raw materials account for 3 percent. imports and 2,4 percent. exports (data for the period 1-7/2021, in this period a positive total trade balance amounted to PLN 14,2 billion). We are benefiting from a surplus in the export of food, cattle and grain, but this is not enough to compensate for the losses resulting from more expensive fuels and other industrial raw materials. Higher prices also fuel inflation. It is estimated that an increase in the price of crude oil by USD 10 translates into an increase in inflation by about 0,2 pp. In the long run, the increase in prices will also lower demand, which may result in stagflation, i.e. a mixture of inflation and economic stagnation. So there is no illusion that high prices will be detrimental to the world economy in the long run.

Increases in commodity prices are also driven by progressive decarbonisation. The price of lithium, which is used to produce batteries, has increased by 254% since the beginning of the year. (including by 41% in the last month). By 64 percent the price of cobalt has also increased since the beginning of the year. Carbon emission permits in the EU, in the ETS system, they went up by 89 percent. Environmental concerns are also reducing investment in oil and coal extraction. The reaction to this, however, is the higher prices currently observed in the case of increased demand. Since the beginning of the year, WTI crude oil has increased by 56 percent, and coal by 163 percent. However, higher prices will support the transition to greener solutions in the long run.

China scares the markets

The perturbation in the Chinese economy is having an impact on the commodity market. Evergrande's problems, concerns about Chinese economic growth and falling demand have driven the price of iron ore down. Over the last month, it dropped by 32 percent, and from the beginning of the year also by 32 percent. The prices of rhodium (-18% since the beginning of the year), palladium (-22%), silver (-17%), platinum (-10%) and gold (-7%) are also falling.

While copper price, which is also produced by the Polish concern KGHM, has increased by 16% since the beginning of the year. Due to its wide use in the economy, copper is considered a great barometer of the global economic situation. When the economy is expanding rapidly, copper prices will rise, and when a slowdown and recession appear on the horizon, prices fall.

Rising commodity prices are a major challenge for the economy today. However, what is a problem for consumers and businesses may be an opportunity for investors. A well-diversified investment portfolio should include raw materials or companies related to the raw materials market. In this way, you can be exposed to the increases that seem to have not ended in the commodity market yet.