Interest rates are rising, commodities falling

Stephen Beard Jun 8, 2006

KAI RYSSDAL: If you’re into keeping track of these sorts of things, it’s not only the Federal Reserve that’s worried about inflation. Seven —count’em — seven central banks have raised their short-term interest rates this week. All the jitters that’s causing are spilling into other markets as well. Over in London, Marketplace’s Stephen Beard picks up that part of the story.

STEPHEN BEARD: The price of base metals and other commodities fell sharply today. Copper dropped by a whopping 6-1/2 percent. The same fear ravaging stockmarkets is at work. Higher interest rates could hit global growth. That worry, says Andrew Hilton of the CSFI think tank, is now puncturing the inflated price of commodities. Copper prices, for example, are still 66 percent higher than a year ago.

ANDREW HILTON: They’ve been bid up by speculators, by hedge funds who’ve been buying them as a speculative investment. But in the end somebody actually does use that nickel, does use that zinc, does use that aluminum to build things. If the economies around the world slow down they’re going to be building fewer things.

The price of oil also fell today, although for a different reason. The killing of Abu Al Zarqawi, Al Qaeda’s leader in Iraq, pushed crude down below $70 a barrel. He was a key figure in the insurgency that’s badly damaged Iraqi oil production.

The market seems to be believe that his death could reduce the threat to the flow of Iraqi oil, says Leo Drollas of the Centre for Global Energy Studies:

LEO DROLLAS: If the opposition is weakened the disruption of oil supplies in Iraq will be lessened. That will help the oil market in the sense that there will be more supplies and prices ought to be lower.

Slower global economic growth could also lead to lower oil prices. Investors may suffer but at least drivers may get an easier ride.

In London this is Stephen Beard for Marketplace.

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