WORLD commodity prices have major implications for the Australian economy in ways not adequately recognised in university textbooks, most of which have been written by American authors, including Ben Bernanke, chairman of the US Federal Reserve Board. These texts pay little attention to international commodity prices, with the exception of oil prices, or to the phenomenon of world inflation, presumably because they are perceived to be of low order importance to the US economy. Yet understanding why international commodity prices have risen steeply, a harbinger of future world inflationary pressures, is of critical importance to most other economies.
Like New Zealand, Australia's exports are concentrated in commodities to an extent unparalleled in other Organisation for Economic Co-operation and Development economies.
Though this specialisation is appropriate from an international trade theory perspective, reflecting the pursuit of the economy's comparative advantage in natural resources, it exposes the economy to external price fluctuations, which have been extraordinary in recent years. (read more)
