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July 27, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) increased by 1.5% last week, its third gain in four weeks. Nine of the ten subindexes rose, marking a broadly based increase. Strength in oil and rubber, which rose 2.7% and 6.3%, respectively, helped lead the MPI higher. Weakness in the US dollar also provided support for the commodity complex as a whole.
The direction of the MPI once again followed oil prices, which showed strength early in the week. US crude oil inventories fell by 4.7 million barrels, more than expected, while demand edged up slightly. The Baker Hughes US rig count fell by 2, although the total North American rig count increased by 13 as producers in Canada continue to come back online.
The recent rise in commodity prices will soon be evident downstream in supply chains and help end the recent softness in goods price inflation. Looking ahead, however, several factors argue for a relatively stable pricing environment. First, oil production gains are expected to at least keep pace with demand growth over the rest of 2017, keeping oil prices soft. Second, Chinese growth is projected to continue slowing over the near term. This slowdown will also act as a restraining influence on prices, given China's footprint in markets. Finally, tightening monetary policy will undercut investor demand, acting as an additional headwind on commodity prices.