World Output and Commodity Price Cycles

This study investigates the cyclical patterns of energy, agriculture, and metals and minerals (MetMin) commodity prices. We identify three super cycles since 1960, and a potential fourth arising from the Ukraine crisis and global COVID-19 pandemic. Employing a Structural Vector Autoregression (SVAR) approach, we establish an empirical relationship between output, CPI, and commodity prices. Our analysis reveals that an output shock leads to a general increase in all commodity prices, where the highest impact is on energy inflation. Moreover, we examine the heterogeneous effects of commodity inflation on overall inflation, uncovering ‘second round' effects across all commodities. Notably, agriculture inflation has the most significant impact on aggregate inflation, potentially explaining the destabilizing nature of food inflation in many countries. Our findings enhance understanding of these dynamics, offering important insights for policymakers and informing the public.Highlights We analyze the cyclical patterns of energy, agriculture and MetMin commodity prices.Real output, CPI and commodities exhibit the same cyclical patterns.A shock to output increases all commodities, where the highest response is energy inflation.We find ‘second-round' effects, where agriculture prices have the highest impact on inflation.