Chapter

Appendix Note on the Measurement of Long-Term Changes in Real Commodity Prices

Author(s):
International Monetary Fund
Published Date:
January 1987
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The sharp fall in commodity prices in 1985–86, particularly in real terms, has brought to the fore once again the discussion of the nature of the long-term trend in commodity prices.36 The purpose of this appendix is to show the developments in 1985–86 in the broad context of historical experience. An index of real commodity prices covering 117 years has been derived by splicing together three series for shorter periods (Table 61). The original series used are those of W.A. Lewis (for years 1870–1913), the United Nations (for years 1913–57) and the International Monetary Fund (for years 1957–86).37

Table 61.Historical Series of Real Commodity Prices, 1870–1986(Index: 1980 = 100)
YearIndex Number1YearIndex NumberYearIndex Number1YearIndex Number1
1870118.51900104.4193083.71960105.7
1871109.71901102.4193175.11961103.5
1872112.11902102.4193269.31962103.9
1873113.71903102.3193370.81963105.1
1874112.41904100.2193476.81964109.9
1875109.9190599.0193578.01965108.8
1876109.91906103.4193682.11966112.8
1877112.81907104.7193786.71967107.4
1878109.5190899.6193879.61968106.1
1879106.31909101.2193931969106.9
1880106.51910102.3194031970106.3
1881108.21911104.619413197198.6
1882110.41912106.819423197298.0
1883107.11913106.5194331973136.1
1884104.219142194431974136.0
1885102.319152194531975100.7
188698.619162194631976108.7
1887100.719172194731977110.7
1888102.21918219483197897.6
1889104.019192194931979104.3
1890101.8192021950126.71980100.0
1891101.7192175.11951131.1198193.6
189299.5192280.91952121.1198285.6
1893101.7192396.51953121.1198393.6
189498.9192498.41954122.2198498.6
189595.0192599.81955117.8198585.1
189696.0192697.21956114.4198669.2
189798.3192799.11957117.6
189899.6192895.01958108.2
1899101.0192994.71959108.0
Source: Commodities Division, IMF Research Department.

A number of important qualifications must be noted in the use of the index of real commodity prices. In addition to the difficulties inherent in using spliced series, there is a major problem of discontinuity because of the absence of data for the period of World War I and for the period during and immediately following World War II. The reservations expressed by economists and statisticians concerning the comparability of both the basket of manufactured goods and the basket of commodities for which prices have been obtained in the construction of the indices must be acknowledged. These qualifications are of particular importance in trying to compare levels of real prices in periods of more than one or two decades apart. They are of less importance in observing the magnitude of shorter-term movements in the index and comparing them with movements over periods of a similar length in the past. As illustrated graphically in Chart 7, the sharp decline in 1985–86 is paralleled only by that in the early 1930s and in 1975; the latter, however, was largely a correction to the exceptionally high level of commodity prices in 1973–74.

Chart 7.Real Commodity Prices, 1870–1986

(Index: 1980 = 100)

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