Commodity prices are dropping across the board

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One reason I believe inflation pressures will slow going forward is that the global economy has already slowed enough to have a measurable impact on oil demand and all commodity prices across the board. As July comes to an end, the month is shaping up to be the worst in commodities for 28 years.

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Tumbling prices for natural gas, nickel and corn are turning July into the worst month for the Reuters/Jefferies CRB Commodity Index in 28 years.

The CRB Index of 19 commodities slumped 9.7 percent since June 30, the biggest decline since a 10.5 percent drop in March 1980, when the U.S. economy was mired in recession. Natural gas plunged 31 percent to lead July’s biggest losers. Corn and nickel slumped 14 percent.

The dollar’s rebound from a record low against the euro eroded the appeal of raw materials as an alternative to stocks and bonds, especially for investors who snapped up commodities earlier this year and sent prices to records. Demand also is easing in China, which expanded at the slowest pace since 2005 in the second quarter, Lehman Brothers Holdings Inc. analyst Edward Morse said in a report on July 23.

-Bloomberg, 31 Jul 2008

It will be interesting to see what happens to commodities demand after the Olympics in Beijing have ended.

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