Getting closer to a real time commodity market equilibrium

Changes in consumer prices are one of the most eagerly anticipated economic indicators for businesses and governments all over the world. Whether it be the degree to which fiscal and monetary policy can be loosened or the rising cost of living for a potentially rebellious population (think Arab Spring) or for businesses just the ability to negotiate with suppliers and spotting emerging supply bottlenecks.

A San Francisco start-up called Premise is starting to offer a real time gauge on global consumer prices (food in particular). As Wired magazine note:

“To see how such movements radiate across the global economy, Premise takes an approach he describes as “machine-human hybrid computing.” The company’s computers trawl more than 30,000 websites worldwide to gather data on millions of products, from pricing and availability to quality and customer ratings. But, at the same time, about 700 part-time workers following daily “shopping lists” snap smartphone photos of mostly perishable goods in physical stores and markets. These represent a huge chunk of global commerce that never gets translated to the internet.”

Here is the China consumer staples index, the weighting matching the official government CPI basket.

China consumer staples index

 

As I say in the introduction, data like this can allow for better market transparency and price discovery. But what if as well as real time prices information the stock of goods (commodities at their core) held by households at any one time was also known?

FT Alphaville highlight a different start-up called Trōv. The company defines itself as a creator of applications that help people collect and benefit from information about everything they own. Targeted mainly at ‘high net worth’ types the system provides them with access to the real-time understanding of the value of their stuff (useful for insurance companies for example).

The potential for it is that it could be much bigger however, becoming a real time inventory of stuff (goods in peoples homes). As FT Alphaville note:

“What Trōv is offering therefore is much more akin to an inventory checklist, which has one day the means to influence real world prices — much the way that the disclosure of inventory and stocks in commodities becomes essential for determining the real value of commodities available for sale at any minute.”

These two start-ups taken together could mean that in the future consumer prices as well as their stock of goods are updated and available in real time. If this level of market transparency could be achieved then commodity supply and distribution could be much more closely matched with consumption resulting in commodity markets which are significantly closer to the market equilibrium at any one time.

Related article: Are commodity markets efficient?

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