Here there is a possibility that climate effects have played a role. Political uncertainty in, for instance, Venezuela and Nigeria has had an effect on the oil price, to mention a couple of examples. Food prices have also been pushed up as a result of alternative areas of use competing for the supply. Agricultural products are being used increasingly in the production of ethanol and other biofuels – and this development is also driven by the higher oil price. Weak dollar, low interest rates and greater interest in commodities as an investment Another factor that has certainly also been significant in the price rise is that the dollar has weakened. Commodities are usually priced in dollars and when the dollar depreciates commodities exporters want compensation. As demand has been strong, they have largely been able to do so, which has pushed up prices. It is also possible that the low real interest rates have contributed to the rise in commodity prices. Commodities then appear to be a more interesting investment than interest-bearing assets. When the interest rate falls, it is also cheaper to keep stocks of commodities. However, it is doubtful whether the stocks have really increased recently. The links that may exist between interest rates and commodity prices imply that there may be a link between monetary policy and pricing in the commodities markets, in addition to the influence via demand in the economy.
Given the monetary policy system we currently have in Sweden, it involves trying to find a path for the policy rate that ensures inflation is reasonably close to the target while the real economy is in balance. This is how one should reason regardless of what shocks affect the economy. In this sense an upswing in commodity prices is nothing special. …but their practical implementation is difficult However, the practical implementation of the principles is far from simple. This is partly because it is no simple task to capture in the forecast all of the effects that rising commodity prices might have on the economy. It is also because monetary policy works with a lag. Rapid price impulses cannot be immediately counteracted. A further complication is that the effects on inflation and the real economy move in different directions. Inflation rises while the real economy, for instance, production and employment, slows down. It is not self-evident how these effects should be weighed against one another, but this is something that must be achieved in monetary policy. The commodity price rises in recent years have caused inflation to rise in many countries. At the same time, growth in production and employment is slowing down. The slowdown is partly due to weaker international economic activity in the wake of the financial market turmoil and the downswing in the United States. But it is probably also partly due to the upturn in commodity prices.