The Trend of Prices

Abstract

If a person were to make a chart showing the daily fluctuations, or price movements, of some agricultural products, as wheat, corn or cotton, he would probably see a jagged line, with ups and downs, and very little or no reguldrity. But if he should examine the price changes more intimately, making averages in various combinations, he would find that, behind the current, apparently irregular movements, certain general trends or tendencies exist. For the purpose of analysis, we may assume that the price of an article at any time is subject to three distinct influences, resulting in three different kinds of trends. These three price trends are briefly, first the seasonal trend or cycle of prices. Prices are usually lowest at harvest time, when marketings are heavy, and then advances, to decline again when the next harvest comes on the market. The second trend is the upward and downward of the yearly average price, under the influence of supply and demand of the specific product considered, the average tending upward when the year's production is short and downward when production is large. Production is influenced largely by climatic and other conditions beyond the control or forecast of man. We may therefore always expect these yearly ups and downs. The third trend or price movement is that which extends over a number of years; it is due to general financial and industrial conditions, to change in the general purchasing power of money, the medium of exchange, rather than to the supply and demand of a particular product. This movement is shown most clearly by index numbers of yearly prices of a group of commodities. When the purchasing power of the dollar increases, prices of commodities in general tend to decline; when its purchasing power decreases prices of commodities in general tend upward.