This could mean that demand for commodities will remain high in the future. One force that could hold back demand is if the price regulation applied by some of these countries begins to be perceived as too costly and is therefore abolished. If this happens, world market prices will have a greater impact on the domestic market. If this happens, it should dampen demand. The other explanatory factors – the weak dollar, the low interest rate, the increased interest in commodities as a form of investment and to some extent also the supply side restrictions – are reasonably of a more short-term, or cyclical, nature. In the shorter term, it is of course possible that commodity prices will slow down as a result of weaker international economic activity. But the emerging economies’ demand for commodities will probably remain as an underlying, long-term driving force that pushes up inflation. It is perhaps this international pressure on commodity prices and the risk of contagion effects on other prices and on wages that will be the first major test for the lowinflation policy. How should monetary policy react in general? What consequences will this have for monetary policy? One thing it is important to remember is that the rising commodity prices are examples of changes in relative prices. A relative price is the price of a particular product or group of products in relation to other prices.
Irma Rosenberg: Rising commodity prices Speech by Ms Irma Rosenberg, First Deputy Governor of the Sveriges Riksbank, at SEB, Stockholm, 9 May 2008. *  *  *  A challenge for the central banks What have we been able to read in the news in recent months? Let me give some examples. Mining companies have begun prospecting for ore in many parts of Sweden, particularly in the Norrland region. Municipalities which have long experienced problems with emigration, such as Pajala, are now facing a more positive situation. Optimism has increased. Increased trade barriers are being reported in some parts of the world. But this is not a question of what has been the usual case, where countries protect domestic industries by limiting certain exports. Instead they have introduced high charges to prevent exports of foods such as grain and rice. We have also been able to read about demonstrations and food riots in poor countries such as Haiti, Cameroon and Burkina Faso. The UN food organisation FAO has also warned of social and political unrest in several countries. Why am I taking up these examples? What have they got in common? Well, they are the result of one and the same phenomenon – that world market commodity prices have almost exploded in recent years. The high metal prices have made it profitable to search for ore and extract metals that earlier would have been left in the ground.