The Metals Price Collapse of the Early 1980s

Abstract

During the 1970s, metals prices increased at least at the rate of inflation, and in some years in increments that heightened general inflationary expectations. But from 1980 to 1986 this linkage was broken. Metals prices declined while general price indices worldwide continued to increase. Chart One illustrates the reversal: The price indices for six out of seven important metals rose more rapidly than the wholesale price index before 1980, but for all seven metals the indices were at or below the wholesale price index throughout the first six years of this decade. Moreover, the relationship of metals prices and the business cycle was severed. The “collapse” of the prices of metals, relative to those of other goods and services, took place over both the 1980 and 1982 recessions, and also during the sustained expansion of the world economy from 1982 to 1987.