Once bitten, twice shy for manufacturers wary of moderating price forecasts

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Overheating concerns in emerging market economies, notably China, have led to a decrease in demand for some key industrial commodities and easing of prices in the middle of this year.

The wider economic slowdown seen in the developed world is likely to be a moderating impact on the price of industrial commodities too.

This is what sits behind forecasts of prices being roughly what they were in 2011q1 in 2012q2.

But the price rises we've seen over the past 18-24 months means that manufacturers are adopting an attitude of ‘once bitten, twice shy' – they are not anticipating a benign environment. Nearly 70% of respondents to our survey are expecting further moderate or significant price rises over the next 12 months.

Perhaps given the recent rises there is an element of psychological scarring, similar to what Andrew Haldane was describing last week with respect to risk-taking in the wider economy post financial crisis.

However, the uncertainty element has certainly been borne out by recent experience and with several tumultuous events since the start of the year (Arab Spring, U.S. debt downgrade, Japanese tsunami) – you can understand manufacturers' caution.

This is why the actions manufacturers' have taken to manage rising prices remain very relevant to companies' decision-making.

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