Business: A Run-Up in Raw Materials

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One of the baleful aspects of the industrial world's quickening economic upturn is the possibility of a resurgence of global inflation. That worry dominated the recent conference of President Ford and heads of government of six other industrial nations in Puerto Rico (TIME, July 12). One reason for their concern: an ominous new rise in the prices of industrial and agricultural raw materials, which, among other things, is making the morning cup of coffee an inflationary drink.

The skyrocketing cost of iron ore, copper, fibers, foodstuffs and other non-oil commodities contributed more than anything else to the devastating double-digit inflation of 1973-74. Commodity prices plummeted during the recent world recession, but now they are bouncing up again more rapidly than had been generally anticipated. Emile van Lennep, secretary-general of the Paris-based Organization for Economic Cooperation and Development, warns in cautious economist's jargon that "the surprisingly early recovery of some commodity prices could presage a new outbreak of speculative price rises and pose a serious threat to the sustainability of the present economic recovery."

Frost-Struck. To be sure, the increases are not yet anywhere near as dizzying as those of 1973, when some prices quadrupled. But there is cause for concern. One closely watched index of prices of 13 industrial raw materials, published weekly by the Economist of London (and calculated in dollars), has risen 34% since last November. Quotations on the London commodity markets, which determine prices for many international transactions, are somewhat overstated since they are expressed in sterling and the pound has been sinking sharply in value. Even so, they are worrisome. Some examples: the sterling price of copper wire bars has jumped 83% above its 1975 low, zinc 44%, nickel 61%, tin 53%, cocoa 161%. In the U.S., soybean futures prices rose 13 cents, to $7.20 a bushel, last week on the strength of rumors of possible large sales to the Soviet Union and China. A recent Common Market economic report notes that the rise in spot commodity prices makes it unlikely that Europe's inflation rates will continue to decline. The dangers are greatest for countries with weak currencies.

To Americans, the most visible and immediately distressing price spiral undoubtedly is the one in coffee. Contracts for future purchases of coffee beans have recently been selling at an astonishing 304% higher than the 1975 lows; in some New York stores the retail price of coffee has hit $2.29 per lb., up from $1.79 a year ago. The principal cause is a crippling frost that in July 1975 killed or severely damaged an estimated 70% of Brazil's coffee trees. The frost struck after most of the 1975 crop had been harvested, so it did not cut exports immediately, but now the impact of the shortage has hit. It will continue to be felt for quite a while too, since newly planted coffee trees take three years to come into production, and output in other countries, such as Colombia, cannot make up for the losses in Brazil.