The Recent Rise in Commodity Prices: a Long-run Perspective1

Commodity prices have increased sharply during the past fi ve years, which has provided a signifi cant boost to Australia’s terms of trade. This article places the recent commodity price boom in an historical context, drawing on an analysis of very long-run price series, and documents some unique features of the current price cycle. The article shows that over an extended period, at least until recently, overall commodity prices have tended to decline relative to the price of other outputs, although with considerable volatility. Much of this volatility has been due to large cycles in the real prices of food and non-food agricultural commodities; for much of the last century, metals prices moved within a fairly narrow range. In contrast, real metals prices have recently increased at a rapid pace, although this was preceded by a period of price weakness. The article also discusses the prices of other important resource exports of Australia, which have recently shown a broadly similar trend to base metals prices.