Consumers, Rejoice: Clothing and Food Prices Should Fall Soon

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Over the past year, the prices of many commodities have risen at record paces to record highs, but recently, those prices have begun to plunge, and consumers should begin to see the beneficial effects of those declines fairly soon. Oil continues to be an high-priced exception, but the typical American shopper is probably going to see some relief when shopping for groceries and clothing.

Most recent headlines about falling commodities prices have focused on gold and silver. Silver prices have dropped below $40 nearly as quickly as they jumped toward $50. But corn prices fell 2.9% on Monday and another 1.5% on Tuesday. Corn now trades at $7.16. A jump in the value of the dollar deserves part of the credit. In early April, corn traded at $7.72. Because a large amount of corn is used to feed cattle, the price of beef is likely to tick down as well.

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The situation with wheat is much the same. Wheat priced for July delivery dropped to $7.89 recently. Wheat had reached $10 in February, mostly on concerns about the size of the Russian and Chinese wheat crops. Soybean prices have also sold off rapidly from near record highs.

Clothing prices should also begin to drop. Cotton sold for $2.04 a pound in February, but has traded at $1.54 recently.

There are a number of reasons commodities prices are dropping. First, weather-related shortages will probably not be as bad as some analysts had feared: American crop production should be strong this year, and the droughts that plagued China have begun to ease. Concerns about a global slowdown in growth have also raised the specter of a drop in demand for commodity-based products.The economic slowdown could be particularly sharp if China's hot economy begins to cool, which could happen thanks to the Beijing government's tightening of bank reserves there. The manufacturing sector could also slow as demand in Japan and Europe falters.

Many economists had been assuming that discretionary consumer spending in the U.S. would be undermined by the sharp rise in food and clothing prices. That appears less likely now with commodities prices heading back down. Those declines are should prove to be good news for the American economy, and even better news for the American shopper.
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