The effect of inflation on real commodity prices

Authors

• Reicher
• C.
• Utlaut
• J.

Publication Date

JEL Classification

Key Words

Recent research has shown that economic conditions have an important effect on real

commodity prices. We quantify the contribution of fluctuations in inflation to this particular

link. In the data, a temporary rise in inflation causes real commodity prices to rise, as does a

rise in trend inflation. We find that a simple dynamic equilibrium model of commodity

supply and demand gives a realistic response of real commodity prices to inflation. Based on

historical simulations, shocks to inflation played an important role in commodity price

dynamics during the 1970s, but they have contributed negligibly to commodity price

movements since then.