Economist: Commodities Inflation (Including Oil) Will Not Hurt Economic recovery Next Year
A UBS economist told CNBC on Wednesday that he does not think commodity price inflation will necessarily hinder a global economic recovery in 2010. As shown in the video below, Paul Donovan, senior international economist for UBS, said in an interview with Stephen Sedgwick and Sri Jegarajah that if commodity prices are increasing, it is because of increased demand; if demand is increasing, “it is because we’ve got growth.”
However, several experts disagree and say higher oil prices will slow economic recovery. On November 18, JBC Energy’s Johannes Benigni told CNBC, “Right now crude is at $80 a barrel, but we haven’t meaningfully broke through that price. Let’s assume oil goes to $100 dollars a barrel … It will then break the worldwide economic recovery.” In addition, Donovan’s assertion that commodity prices are directly correlated with demand does not necessarily hold water in the face of increased supply, decreased demand, and high prices.
Donovan’s claim that commodity prices are driven by demand is also a more contentious claim than it may seem. In the Huffington Post, Raymond Learsy has spoken out against the CFTC’s inaction in the face of artificially inflated oil prices, and asserted that oil prices are no longer dictated by supply and demand. John Gerlach, a professor at Sacred Heart University in Connecticut, agrees that speculators are artificially driving up the price of oil, and told the Westport Minuteman that the U.S. is seeing oil surpluses because Americans are consciously trying to consume less energy.