Bloomberg News reports that a key commodities index, Standard & Poor’s GSCI index, rose 24 percent over the past year and is now at its highest level since September 2008, which you may recall also happened to mark the early stages of the Wall Street meltdown.

That rise is a direct reflection of the increase in prices for a wide range of raw materials including energy products, industrial metals, agricultural products, livestock products and precious metals.

At first glance, some spectators might view the situation as a sign that inflation is rearing its head, thereby threatening to undermine America’s tenuous economic recovery.

Not so, according to several analysts interviewed by Bloomberg. Michael Darda, chief economist for Stamford-based MKM Partners, notes that commodity prices tend to move comparably with U.S. production, personal income and the stock market, so that the long-term outlook is really cause for optimism. He told Bloomberg that he expects the U.S. economy to grow by about four percent this year (compared to 2.9 percent in 2010) and for the S&P 500 Index to reach 1,425 this year from its current 1,282 level.

Likewise, Nariman Beharavesh, chief economist at HIS in Lexington, MA, and a former Fed official, explains that rising commodity prices are an indicator that U.S. economic growth continues to gain steam.

Meanwhile, companies that rely on raw materials for their production facilities have several avenues available to offset the increase in prices: by locking in prices through hedges, by increasing worker productivity and by reducing other operating costs.

With such market volatility, outsourcing one or more of these options makes the most sense.

Outsourced strategic sourcing consultants can provide cost reduction and hedging strategies without the ongoing expense required when hiring dedicated resources. Further, experienced resources can often identify and implement savings strategies faster than new resources that require time and training to get up to speed.

If you would like to explore potential cost reduction strategies for your business, contact us at our Source One site.
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Thomas Derr

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