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A closer inspection, however, reveals that
such a view is not really a complete or even accurate explanation of
the processes currently at work. To understand whether oil prices remain
of continuing significance for the world economy or not, it is first
necessary to examine the long term trends in this price relative to
those of other important trade commodities.
Chart 1 plots these trends in the world trade
prices of oil, non-oil commodities and manufactured goods. The prices
refer to index numbers of nominal dollar prices with 1990 as the base
year. The first point that needs to be noted is that the most recent
hike has come after a long period of slump in oil prices, even as manufactured
goods prices have been gradually increasing. Between 1986 and 1998,
oil prices remained low if unstable, and even after the increase, by
May 2000 they had not even recovered to the level achieved in 1979,
and were about 25 per cent lower than their peak in 1980. (It should
be noted that all the data for 2000 pertain to January-May of this year.)
So the increase in oil prices, sharp as it
may appear, may be seen in more long run terms as a corrective to the
very low levels that have prevailed for the past decade and a half.
What is more significant in terms of international inflationary pressures,
is that such a rise in petroleum prices has not been accompanied
by any companion increase in the prices of non-oil commodities.
This is unlike the pattern of the 1970s, when
oil price hikes effectively set the tone for more generalised rises
in international commodity prices, which peaked in 1976 and 1980. The
recent increase has been associated with a continued slump in non-oil
commodities, with no apparent indication of reversal of such a tendency.
Not only has the recent increase occurred after
a prolonged stagnation in price and not been associated with other commodity
price increases, but even in itself it has not actually been as sharp
and significant as its more famous predecessors. It is evident that
the oil price hike of 1973-74, which effected a fivefold increase in
dollar prices, as well as the subsequent shock of 1978-79, which amounted
to a further more-than-tripling of the price level, were quantitatively
far more significant than the most recent increase.
This is highlighted in Chart 3, which shows
the per cent change in oil and manufactured prices in the three periods
of 1972-74, 1978-80 and 1998-2000. Chart 3 also indicates that the first
two shocks were also coterminous with (many would say, causally related)
quite substantial increases in the dollar prices of traded manufactured
goods as well, whereas as the most recent increase has been associated
with a zero inflation rate for manufactures.
Chart 3 >>
These are all reasons why the latest period
has been associated with little change in terms of overall output and
prices : because the oil prices themselves have not changed as much
as they did earlier, and because this increase in turn has been less
associated with simultaneous rises in other commodity prices and manufactured
goods.
Indeed, in relative terms, oil prices have
hardly increased with respect to manufactured goods prices despite the
very significant nominal spurt. Chart 4 plots the change in nominal
oil prices relative to manufactured goods prices. It shows that even
after the recent hike, the relative price of oil is still substantially
lower than it was in 1985, and really seems closer to the depressed
levels of the rest of the decade of the 1990s. The closest comparison
is with the periods 1976-77 or 1990, and does not suggest a sharp upward
movement in relative price.
Chart 4 >> |
