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Commodity prices and inflation

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  • Frederick T. Furlong

Abstract

This study examines the empirical relationship between changes in commodity prices and inflation by looking at the performance of non-oil commodity prices as stand-alone indicators of inflation and in conjunction with other leading indicators of inflation. The results indicate that the empirical link between commodity prices and inflation has changed dramatically over time. Commodity prices were relatively strong and statistically robust leading indicators of overall inflation during the 1970s and early 1980s, but they have been poor stand-alone indicators of inflation since the early 1980s. When considered in conjunction with other likely indicators of inflation, non-oil commodity prices have had a somewhat more statistically robust relationship with inflation in recent years, though the added information content in commodity prices regarding inflation is limited.
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Suggested Citation

  • Frederick T. Furlong, 1989. "Commodity prices and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun16.
  • Handle: RePEc:fip:fedfel:y:1989:i:jun16
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    References listed on IDEAS

    as
    1. Kugler, Peter, 1991. "Common trends, commodity prices and consumer prices," Economics Letters, Elsevier, vol. 37(4), pages 345-349, December.
    2. Frederick T. Furlong, 1989. "Commodity prices as a guide for monetary policy," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 21-38.
    3. James M. Boughton & William H. Branson, 1988. "Commodity Prices as a Leading Indicator of Inflation," NBER Working Papers 2750, National Bureau of Economic Research, Inc.
    4. Robert H. DeFina, 1988. "Commodity prices: useful intermediate targets for monetary policy?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-12.
    5. S. Brock Blomberg & Ethan S. Harris, 1995. "The commodity-consumer price connection: fact or fable?," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 21-38.
    6. R. W. Hafer, 1983. "Monetary policy and the price rule: the newest odd couple," Review, Federal Reserve Bank of St. Louis, issue Feb, pages 5-13.
    7. C. Alan Garner, 1995. "How useful are leading indicators of inflation?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-18.
    8. Jeffrey A. Frankel, 1986. "Expectations and Commodity Price Dynamics: The Overshooting Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 344-348.
    9. Cody, Brian J & Mills, Leonard O, 1991. "The Role of Commodity Prices in Formulating Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 358-365, May.
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    Keywords

    Prices ; Inflation (Finance);

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