Resource limitations will continue to force up commodities prices, risking a crippling effect on growth unless governments radically rethink their approach to planning, according to Jeremy Grantham, co-founder of US asset management firm GMO, which has $107bn (€73.4bn) of assets.
He warns that politicians must develop “serious resource plans, particularly energy policies” in order to avoid devastating shortages.
The nub of Grantham's research is the observation, based on GMO's commodity index, that prices of all important commodities have leapt since 2002. The increase is greater than the price surge seen during World War II and has been so steep as to erase 100 years' worth of declining prices, said Grantham, who holds the chief investment strategist position at Boston-based GMO. He said the phenomenon is “perhaps the most important economic event since the Industrial Revolution”.
“From now on, price pressure and shortages of resources will be a permanent feature of our lives,” said Grantham. “This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.”
The report comes as investors, urged on by rising prices, pump money into instruments which track commodities. ETF Securities says assets invested in commodity ETPs (exchange-traded products) reached a new high of US$174bn (€120m) in the first quarter of this year.
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