Sean O'Grady: Supply, demand and a bit of speculation create inflation

Blaming speculators for food-price inflation would be all very well if we then thanked them when prices collapsed.

The causes of commodity-price inflation in the past few years have usually been as they first appeared. On the supply side, freakish weather conditions have wrecked anything from the Brazilian coffee crop to Russia's wheat harvest. On the demand side, we have the very obvious demand from fast-emerging economies such as India and China for food – and increasingly protein-rich meat and poultry – and industrial raw materials. Put supply and demand together, and you find a price spike. No surprise.

However, it is also impossible to deny the existence of financial food speculation and its influence, which seems usually to amplify existing movements, rather than cause them, and not always for very long. Thus, one hedge fund manager recently bought sufficient cocoa to make 5 billion bars, a veritable Willy Wonka of high finance. He may be making money now. Investors are indeed keener to buy into commodity funds than in the past. But the speculators got their fingers burned badly when the price of coffee went the wrong way in June. Or take the ultimate manipulator: in the 1990s a trader named Yasuo Hamanaka ended up owning the copper market – but his employers, Sumitomo, lost at least $1.8bn (£1.2bn).

The futures markets for commodities, invented in Chicago in the 1850s, were originally designed to help Midwest farmers cope with unreliable weather. Do they still? The truth is best put by the sober experts at the UN Conference on Trade and Development: "Various studies find that financial investors have accelerated and amplified price movements at least for some commodities and some periods of time."