The reduction in global economic growth and growth expectations is leading to one benefit: a sharp decline in commodity prices, creating hope inflation may be peaking in many parts of the world, The Wall Street Journal reported Monday (subscription required).

Rice and palm oil, two commodities critical for the developing world, are both down about 40% since May, while the world's most vital commodity, crude oil, is down abut 23%, The Journal reported.

An end to surging commodity prices?

Economist Glen Langan told BloggingStocks Monday that while the commodity price-lower trend is still young, continued commodity price declines would be a welcomed sight, provided they don't drop too much.

"The pullback is welcome because many commodities had reached prohibitive levels, hindering commerce and really hurting the modest budgets of the poor/working poor in developing countries," Langan said. "However, too much of a price slide in commodities would be a sign of a pronounced global economic slowdown, which is something we don't want."

Further, Langan said that while regulators in various nations probe 'speculator' activity and alleged price manipulation in commodity markets, he argues that many of the price rises are consistent with historical price booms in other asset classes / sectors.

"In many cases what you've seen is simply institutional investors chasing return on equity. First, we had strong demand for key commodities, which drove prices up. Then, institutional investors entered the market in a major way, further driving up prices," Langan said. "The latter tactic was exaggerated by the use of commodities as surrogates for the sluggish stock market."

Langan said economists will need to review Q3 data to go along with first-half data in order to get a more complete picture of commodity prices and global inflation in 2008, but the initial data is encouraging. "Thus far it looks like a considerable reduction in inflation in emerging markets. Countries like China may see a drop to the 5.5-6.5% level from the 7-8.5% level for inflation," he said.

Economic Analysis: Again, given the inflation correlation, the easing of commodity prices globally is a welcomed trend, provided it doesn't go too far. A collapse in commodity prices in 2009 would signal a global recession, but so far there are no signs of the latter.