Inflation and commodities: Examining the link

Commodities are commonly viewed as an inflation hedge. This perception is driven by two factors — the first being the numeraire effect of U.S. dollar pricing and the second due to how inflation may be defined. A common way to measure the inflation rate is to calculate the percentage change in the consumer price index (CPI). In the United States, the Bureau of Labor Statistics (BLS) publishes the monthly price index based on a pre-determined basket of goods and services. A large fraction of the U.S. CPI basket contains exposure to commodities.

The Bloomberg Commodities Investment Insight report focuses on the properties of commodities returns in relation to U.S. inflation. The analysis is divided into two parts: assessing the linear relationship between inflation and commodities returns and then examining commodities’ return characteristics, controlling for the level of inflation. Since the aim is to assess the changes in the CPI, we use non-seasonally adjusted CPI data.

Commodities data are available from January 1960 for the Bloomberg Commodity Index (BCOM). For more information on this or other functionality on the Bloomberg Professional Service, click below to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.