Commodity prices to remain high

The World Economic Outlook 2011 published on Tuesday by the International Monetary Fund (IMF) claims that commodity prices will remain high, and inflation is rising in some emerging economies.
Prices for both oil and non-oil commodities rose considerably in 2010, in response to strong global demand but also to supply shocks for selected commodities. Upward pressure on prices is expected to persist in 2011, due to continued robust demand and a sluggish supply response to tightening market conditions. As a result, the IMF’s baseline petroleum price projection for 2011 is now $90 per barrel, up from $79 per barrel in the October 2010 World Economic Outlook (WEO).
As for non-oil commodities, weather-related crop damage was greater than expected in late 2010, and price effects are expected to unwind only after the 2011 crop season. As a result, non-oil commodity prices are expected to increase by 11 per cent in 2011. Near-term risks are now to the upside for most commodity classes.
The uptick in consumer price inflation in emerging economies in 2010 was attributable partly to rising food prices. But the recent bout of high food price inflation has been quite persistent, straining the budgets of low-income households and beginning to feed into overall price inflation in a number of economies.
More important, rapid growth in emerging and developing economies has narrowed or in some cases closed output gaps in these economies. Accordingly, overheating pressures are starting to materialise in some cases. Consumer prices in these economies are projected to rise by six per cent this year, an upward revision of 0.75 percentage point relative to the October 2010 World Economic Outlook (WEO). Signs of overheating are also becoming apparent in some countries via rapid credit growth or rising asset prices.
The picture is quite different in advanced economies, where still-ample economic slack and well-anchored inflation expectations will generally keep inflation pressures subdued. Inflation is expected to remain at 1.5 per cent this year, unchanged from 2010 and a slight upward revision from the October 2010 WEO.