I attended a luncheon address today by John Murray, one of the Deputy Governors of the Bank of Canada. His talk was about commodity prices.
It was a straight-forward presentation of important facts, carefully hedged in many ways. And yet he seemed to address important issues, especially for the Saskatchewan and Canadian economies.
- An important item in his presentation was that after correcting for the rate of inflation, real commodity prices haven't risen much, if at all, in the long run. Unfortunately many of the data series he used to make this point ended over a year ago, and the recent run-up of commodities prices was excluded from consideration.
- He made the well-known but still very important point that growth in the emerging-market economies is having a big impact on the increasing demand for commodities. This growth in demand is likely to continue to put upward pressure on commodities prices (a projection which marks a deviation from the past as outlined in the previous point and which merited no comment from him).
- While Murray wouldn't go out on the limb and tell people that the wild swings in commodities prices are not due to speculators' actions, he did emphasize that in general speculation plays an important role in dampening price swings. He also noted that during the recent run-ups of commodities prices, inventories have dwindled, indicating that these price increases are the results of real economic forces. If they had been the result of speculative action, we should have seen inventory increases, not decreases!
His policy recommendations included increasing the transparency in financial markets. Notably, he also spoke strongly in favour of structure reforms that would increase the flexibility and the ability to adjust and adapt throughout the economy. He specifically mentioned reducing the importance of price controls and subsidies where they exist.
Overall, his points were solid.
Addendum: I'd like to thank Ken Rasmussen for making it possible for me to attend the event at no charge. Ken is the Director of the Johnson/Shoyama Graduate School of Public Policy in Regina, which was a co-sponsor of the event.