April 07, 2008 (LBO) – The International Monetary Fund has warned that the current commodity bubble, perhaps the biggest in four decades, which has sent oil, metals and food prices zooming may burst soon as a global credit bubble unwinds rapidly. . A crumbling commodity bubble, while lowering oil and imported food prices could reduce prices for Sri Lanka’s tea and raw rubber exports.
Massive commodity bubbles usually happen in tandem with property and financial bubbles caused by central bank money printing in developed countries, particularly the United States.
But they also tend to collapse when the underlying credit bubble collapses.
Though the US credit bubble has already burst commodity prices are still high, which could indicate that commodities are living on borrowed time already.
“However, commodity prices have to date remained strong despite the signs of weakening economic activityâ€¦, Simon Johnson, IMF’s research director and economic counsellor told reporters after the release of the World Economic Outlook report this month.
“In fact, I cannot recall a time where I have seen such a striking dichotomy between global commodity and credit markets each sending conflicting signals re