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March 5, 2015 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) fell 0.7% last week, led by softness in lumber, oil, and ferrous metal prices.
Despite a quieter few weeks, February marked a seventh consecutive monthly decline for the MPI—the longest soft patch since 2001. The 37% drop since July represents the fourth-largest correction in MPI history—behind the peak-to-trough moves in 2008 (down 63%), 1996–98 (down 50%), and 2000–01 (down 49%).
Policy decisions will play a role in determining how much farther commodity prices could fall. Market expectations for target US interest rates over the next two years are markedly different from those in the latest FOMC statement—a disconnect that may cause some volatility over the second half of this year. Even provided the prospect of a delayed first rate hike by the Federal Reserve, diverging monetary policy continues to be the theme supporting the US dollar and weakening commodity prices, with the People’s Bank of China as the latest central bank to ease conditions to support growth.