Colin Barr

Following the money in banking, economics, and Washington

The momentum for higher commodity prices

May 17, 2011: 2:59 PM ET

If you're weighing the long-term case for higher commodity prices, consider this comment from Bank of Canada governor Mark Carney.

Carney's speech Monday focused on Canada's role in a changing world, but it included this aside about the price of stuff like oil, copper and grains:

Coming back for more?

The expanding urban middle class in emerging economies is having a major impact on a wide range of commodities. Whether it is travel, housing or protein, consumption levels in major emerging markets are currently fractions of those in advanced economies.

With convergence still a long way off, the demand for commodities can be expected to remain robust for some time. Based on the experiences of Japan in the 1960s and Korea in the 1980s, emerging Asia's energy and metals intensities should gain momentum in coming years.

Commodity prices have been falling lately, of course, and they may continue to do so as the economic recovery sputters through the balance of 2011. And over time there will be a supply response that will ease prices for many goods, if not necessarily as quickly as we might like (and perhaps not at all in the case of oil, except at much higher prices).

But reading Carney's remarks – and looking at a commodity index chart covering the past five years (see right) – says we shouldn't get too used to the good news of the past month.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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