There are many factor affecting the prices of commodity. In this post we try to identify the 2 big factors in short article that is easy to understand and remember.


The Demand

 Product demand increases with the purchasing power of consumers, that is, when people have more money to spend. But because production is not on demand, that means production is declining. As a result, as demand increases but insufficient supply causes prices to rise. In addition, factors that could drive up demand for goods include rising wages, rising real estate prices and lowering the exchange rate. In economic terms, if a commodity rises due to rising demand, it is called "demand-pull inflation".



Price of Raw Material

If the price of raw material goes up, it is certain that the selling price will go up as well. The cost of a product, such as the cost of raw materials and labor costs, is a large part of product pricing. In this case, in economic terms, it is called "cost-push inflation" or inflation caused by rising costs. We can take the case of the global oil crisis during 1973 as an example. By then, members of the Organization of the Petroleum Exporting Countries (OPEC) had raised crude prices sharply, and many countries were affected economically and politically. Rising crude oil prices have pushed up the price of gasoline or kerosene as well.



The above two factors are the main factors in the economy that can cause commodity prices to rise. In addition, rising commodity prices may also be due to other secondary factors, such as the supply of cash in the economy. This happens when the government or the central bank overproduces money. As a result, cash flow in the economy increases more, but if output volumes do not change, it will lead to higher commodity prices, or what we know as inflation.