End of Inflation?

As peace rumors set off price breaks in both stocks and commodities, Manhattan's Communist Daily Worker shrilled: "Wall Street shivers with fear at the news of possible peace in Korea." Actually, no news is more bearish for the market than war itself, as the Korean war demonstrated in 1950, when it knocked down stock indexes as much as 26 points (TIME July 10, 1950).

But any sudden, unexpected news almost always upsets a free market. The Chinese overtures caused many stocks to drop as much as two points, a few (notably the peace-vulnerable aircrafts) as much as three points. This week the drop continued; in one day the Dow-Jones industnal index fell 5.93 points to 274.10. The heaviest selling began in commodities, not only on US. markets, but on Europe's bourses In the U.S., futures contracts in wool, rubber, sugar, soybean oil and grains went tumbling. In one day, the Dow-Jones index of commodity futures fell 2.69 points, biggest drop in two years.

The shake-out underlined the slide in commodity prices which has been going on since early 1951 (see chart). For businessmen, the long decline in commodity prices was more significant than the ups & downs of the stock market, since it is the prices of raw materials that, in the long run determine many retail prices. And even hough some retail prices are still rising the worldwide price trend, forecast by commodities is downward. Many of the commodities, like wool and rubber, which had the biggest rise right after the Korean war, have had the sharpest fall since. The Government's index of all commodities (2,000 separate items) is not far above its pre-Korea level, but some key commodities (e.g., fats, oils and fibers) are below the June 1950 level.

What Goes Up . . . Actually, speculation and hoarding provoked by Korea drove most commodities higher than any shortage justified. But the rise stimulated bigger production, which helped knock prices down. Rubber shot as high as 75-c- a lb. But as soon as U.S. synthetic plants got into big production of rubber at 23-c- a lb., natural-rubber prices collapsed. Similarly, the slump in the textile industry sent wool tumbling.

On many strategic materials, another downward pressure is the fact that the U S has already bought 78% of its scheduled $7.5 billion of stockpiles. Some metals --cobalt, chrome and nickel--are still critically scarce, and still high. But the supply of copper is now improving to the point where it looks as if the world price of 36-c-, which is 4-c- a lb. higher than the U.S. price, is more likely to drop to meet the U.S. price than vice versa.

As for most agricultural products, not only the U.S. but Europe had near-record bumper crops last year. On had both sides of the ocean, barring an extension of the Korean war, nations are faced with surpluses of everything from wheat to dairy products.

. . . Must Come Down. None of this means economic disaster. For the U S it is bound eventually to mean some rough bumps and adjustments, at least for the economic groups affected. For England and other have-not nations, which have been tightest squeezed by high import prices, it is good news. Australia's sharp but short recession last year after wool's big drop demonstrated a quick recovery can be made once price uncertainties disappear. The prospect is that, as more commodity prices ease, more industries, and more raw material producing areas will, one by one, go through the same kind of shakeout. In the long run, that should mean a more stable economic situation all round.

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