New York, NY, United States (AHN) – Soaring commodity prices are wreaking havoc on consumer’s budgets here in the U.S., but experts say not to expect them to go down because the culprit is increased global demand for food and fuel.

Increased demand from population growth in developing nations is not only causing prices to increase but it is also causing a scarcity of resources, according to Jeremy Grantham, who helped found Boston-based GMO asset management firm.

Grantham says that population growth and the rise of India, China and Brazil have caused a shift in balance in the world that has resulted in increasing prices for food, energy and metals.

Those factors are contributing to soaring global prices for those commodities. Although some people have blamed speculation in commodity markets or the fiscal policies of some governments or central banks, population growth is also a driving force in pushing prices upward. That means that if even commodity markets crash, prices will not stay far down for long, Grantham says.

Grantham notes that in the past century commodity prices declined by 70 percent because of economies that were achieved in using materials more efficiently or substituting materials. However, he said that trend is reversing as we reached the end of being able to achieve efficiencies at a time when the world population was growing.

In addition to global population growth, people in developing nations are earning more and consuming more as a result.

In his April 2011 newsletter, Grantham warned that it was “time to wake up” because “the days of abundant resources and falling prices are over forever.”

“The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value,” Grantham wrote. “We all need to adjust our behavior to this new environment. It would help if we did it quickly.”

Grantham summarized the problem:

• Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.
• From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific c progress.
• Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
• The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land and water.
• Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
• The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
• The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
• But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
• Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
• Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
• Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
• From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
• We all need to develop serious resource plans, particularly energy policies. There is little time to waste.

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