Do Commodity Price Spikes Cause Long-Term Inflation?

We estimate the commodity price pass‐through to consumer price and food price inflation for the case of Indonesia using quarterly data from Q1 2000 to Q3 2023. In the analysis, we consider the aggregate commodity price as well as its two components, namely, energy price and non‐energy price. Employing the local projections method, we find evidence supporting significant spillover from changes in aggregate commodity price, energy price and non‐energy price to consumer price inflation, which is apparent when the commodity price changes are positive, and the inflation level is high. We also document significant responses of the food prices to changes in the commodity prices under high inflation environment. Among the three commodity prices, the non‐energy price seems to have the largest pass‐through to both consumer and food price inflation. Moreover, as compared to its effects on consumer price inflation, the non‐energy price pass‐through to food price inflation is relatively stronger. These results bear important implications for monetary policy responses amid wide swings in commodity prices.

Can carbon taxes be progressive?

ABSTRACT. The purpose of the paper is to investigate the influence of changes of commodity price level in the world commodity exchanges on variation of general price level index in Lithuania. Object of the research is commodity price level in the world commodity exchanges. The methodology applied is following: study of the recent scientific literature, collection and analysis of statistical data, correlation regression analysis. The conclusion can be made that variation of general price level in Lithuania depends on changes of commodity prices in world commodity exchanges, mostly from the prices of aluminium, cocoa, coal and oil. Regression function made with analysed commodities is adequate to real situation and chosen variables X explain the 64% of inflation variability and 36% are explained by other factors. The results show that the determinate regression function could be practically used to forecast the dependence of inflation rate on the particular factors.JEL Classification: E31Keywords: general price level, inflation, commodity price, commodity exchange, market, Lithuania.(ProQuest: ... denotes formulae omitted.)IntroductionFor many years modern economies is facing significant problem of overall increasing general price level. During which the value of monetary unit falls and decreases its purchasing power - so called inflation appears. Inflation affects not only the area of prices, but directly and indirectly it touches the various areas of economic and social life, causing many negative consequences for countrys economic development.Commodity prices are volatile as well as most of commodity exchanges are volatile and dynamic. It affects the domain of specific fields, such as agricultural economics. For many financial institutions worldwide commodity trading has become an important mean to gain profit. Commodities nowadays are an important component of many investors' portfolios.One of the most influential factors affecting inflation rate is the price of production costs, from which mainly depends the final price of goods and services in a market. Therefore the price changes of the most important commodities in the worlds commodity exchange markets influence the price of local producers or imported production. This paper analyses the influence of price changes of commodities to general price level in Lithuania. The aim of the research is to analyze the variation of general price level in Lithuania and changes the prices of commodities in the worlds commodity exchange markets, identify the influence of the price changes of commodities on variations of general price level as inflations parameter. In order to achieve the aim correlation regression analysis was used. It allows to set the relation and establish the connection between price changes of commodities and general price level.1. Inflation and factors conditioning itRelative prices changes, income and assets are repartitioned among the different people and groups, indexes of national production and employment depart form the average during the inflation period. In such situation some are winners, some are losers. But these factors have an influence on the whole economy. The costs of inflation depend not only on its rate, but also on the expectation factor. When inflation is expected people may prepare better, and impact will be less painful (Snieska, 2006). It is important to notice that increase of prices of one product or several groups of products is not evaluated as inflation. Scientific and technological development and demand fluctuations allow the prices to increase and decrease. At the other hand change of prices of particular groups of products can be named as increase of price level. That is why the inflation and the change of price level are adequate terms when it comes to the growth of general price level. Some economists emphasize that the inflation is not onetime, but long term change of price level. …

Using Geweke feedback measures, we present empirical evidence that largely supports the hypothesis that the stock markets of South American countries are highly affected by changes in commodity prices after controlling for changes in exchange rates, interest rates, and North American stock market changes. In total, six different Goldman Sachs commodity price indexes are tested against the unexplained variation in stock market returns for Argentina, Brazil, Chile, Colombia, Peru, and Venezuela, covering the period 1995-2007. The Argentinian, Brazilian, and Peruvian stock markets are significantly affected by changes in commodity prices the same day. Venezuela's stock market, however, does not react to changes in commodity prices, even including energy prices. Stock market returns for Chile show a contemporaneous relation with energy and metals prices, whereas Colombia's equity market is affected by price changes for agricultural and industrial metals. In all cases, we find a contemporaneous relation and no indication of a lead or lag relationship.

ABSTRACTThis study examines the degree to which the deployment of well service rigs is responsive to changes in commodity prices and operating rigs in terms of long- and short-run estimates of elasticity. Well service rigs respond more to changes in natural gas rigs than oil rigs, and more to real oil prices than to real natural gas prices. In the shorter term, the findings document that the responses of well service rigs to changes in natural gas rigs and real oil prices are highly elastic, with no significant responses to changes in natural gas prices. The error correction model reveals that the change in well service rig usage adjusts to eliminate disequilibrium in the long-run relationship that exists between rigs and commodity prices. This research shows the important role that well service rigs play in the decisions of exploration and production (E&P) companies as they respond to changes in commodity prices.

This paper provides an overview of the impact that one-time changes in commodity and other prices have on household welfare. It begins with a collection of stylized facts related to commodities based on household survey data from Latin America and Africa. The data uncovers strong commodity dependence on both regions: households typically allocate a large fraction of their budget to commodities, and they often also depend on commodities to earn their income. This income and expenditure dependency suggests sizable impacts and adjustments following commodity price shocks. The article explores these effects with a review of the relevant literature. The authors study consumption and income responses, labor market responses, and spillovers across sectors. The paper provides evidence on the relative magnitudes of various mechanisms through which commodity prices affect household (and national) welfare in developing economies. Commodity price changes, Poverty and welfare impacts, Net consumers and net producers .

The movement of global commodity price is the main concern of the public due to its influences on production cost, expectation of investors, responses of policy authorities and the performances of economies globally. In this study, we focus on the examination of the commodity price changes on the sectoral consumer price index (CPI) changes in Malaysia. The effects of commodities are compared by energy, non-energy and precious metals. The Markov-switching regression is innovated to include the asymmetric effects of commodity price increases and decreases. In particular, we seek to compare how commodity price increases and decreases vary across sectoral consumer price changes in Malaysia. Our results detect asymmetric of commodity price changes on CPI inflation across sectors, the effects vary across sectors. Non-energy and precious metals have larger impact on CPI of beverages, food and transportation. The effect of energy commodity is limited by the implementation of policies such as price control scheme and subsidies. Besides, CPI of clothing and recreation show tendency to increase while majority sectors are stable.

This paper examines various theorems of trade and general equilibrium in a generalized framework involving arbitrary numbers of goods and factors. It develops structural relations among the changes in outputs, commodity prices, factor rewards, and factor endowments. By finding a way of inverting a bordered matrix with a singular Hessian, the paper derives explicit expressions for the following matrices: the Stolper-Samuelson matrix; the Rybczynski matrix; the matrix which measures the effect of a change in factor endowments upon factor rewards at constant commodity prices; and the matrix which measures the effect of a change in commodity prices upon outputs at constant factor endowments. Various properties of these matrices are used to obtain, among other results, the reciprocity relations and general results on factor-price equalization. The paper also ey.amines the problem of indeterminacy in production when the number of commodities exceeds the rank of the input-coefficient matrix and presents the correct specifications of the supply functions of outputs. Finally a new theorem on the degree of flatness of the production transformation surface is derived.

This study is concerned with the influence of changes in commodity prices on security prices. The study is motivated by the observation that stochastic changes in commodity prices represent a risk to each consumer-investor and that attempts to deal with these risks may be reflected in the demand for securities and ultimately in their prices and rates of return. If security rates of return do reflect information regarding relative price-change risk, it should be possible to extract that information from the price and returns history of the securities. Following this reasoning, we attempt to form portfolios of stocks and U.S. Treasury bills that hedge against price changes of various commodities. This approach differs from previous studies on hedging because we attempt to hedge against price changes in individual commodities, not macro aggregates. Our empirical results, however, indicate that the history of stock and bill returns contains very little information regarding relative price changes so that our attempts to hedge against commodity price

Commodity price changes and the predictability of economic policy uncertainty

Fundamental economic factors—market demand and supply conditions—provide the most consistent explanation for trends in commodity prices from 2004 to 2011. This paper presents empirical evidence that the rise and fall of commodity prices on a monthly basis can be strongly linked to the value of the U.S. dollar and the world business cycle—in particular, to the strength or weakness in emerging market economies such as China, Brazil, India, and Russia. Despite concerns raised by some policymakers that increased commodity index investment (the financialization of commodities) has driven commodity price movements, numerous academic studies have concluded that index-based investing has not moved prices or exacerbated volatility in commodity markets in recent years. An examination of weekly and monthly net flows into commodity mutual funds reveals that these flows have little or no effect on the overall growth rate of commodity prices. In particular, weekly flows into commodity mutual funds do not lead to future commodity price changes. These results are consistent with academic papers that find little or no impact of commodity index investors on commodity prices in individual markets. The paper concludes by briefly discussing three key factors that illustrate why flows into commodity mutual funds cannot explain commodity price movements.

It is the expenditure on consumption that constitutes the basic share of the expenditures of the households that supply labor as a factor of production in an economy. These expenditures have an indirect effect on the input costs of the companies that demand labor as a production factor. The change in food prices determines both the relative price structure of the economy and the inflationary trend in the economy for the future, depending on the changes in labor and goods markets. For this reason, households that make the consumption decisions of companies as a producer decision unit in the economy are highly sensitive to changes in food commodity prices. A continuous and permanent change in food commodity prices has a direct impact on consumption expenditures and investment decisions. This effect causes supply shocks that may arise as a result of food and commodity prices to turn into demand shocks at the same time. From this point of view, this study investigates the distribution of volatility in global commodity prices, food commodity prices, Baltic dry indices, and crude oil prices, which are the indicators of price trends of basic inputs in international markets. Thus, the mechanism of spillover of a possible supply shock is revealed at the international level under the restrictions of the asymmetric TVP-VAR approach.

Exchange-traded funds (ETFs) have become popular investments since first introduced in 2004. These funds offer investors a simple way to gain exposure to commodities, which are thought of as an asset class suitable for diversification in investment portfolios and as a hedge against economic downturns. However, returns of futures-based commodity ETFs have deviated significantly from the changes in the prices of their underlying commodities. The pervasive underperformance of futures-based commodity ETFs compared to changes in commodity prices calls into question the usefulness of these ETFs for diversification or hedging. This article examines the sources of the deviation between futures-based commodity ETF returns and the changes in commodity prices using crude oil ETFs. The authors show that the deviation in returns is serially correlated and that a significant portion of this deviation can be predicted by the term structure of the oil futures market. They conclude that only investors sophisticated enough to understand and actively monitor commodity futures market conditions should use these ETFs.

Commodity prices have been rising at unprecedented rates over the last two years. The primary objective of this paper is to assess if and how firms pass through upstream cost increases to final good prices. First, we investigate what happens to the shelf prices (the regular prices) of goods that contain significant amounts of a commodity whose price has changed. The objective is to document patterns of price rigidity depending on the share of the commodity in the final good that is sold to consumers. For example, given an abnormal commodity price change in wheat, what happens to the shelf regular price of bread, wheat cereals, and other goods that contain wheat? Commodity pass-through patterns for ready to eat cereal (smallest share of commodity in final product) and fresh chicken (largest share of commodity in final good) are investigated. Second, we also assess what happens to the net prices consumers pay (that is the regular price net of discounts offered). One possible way to pass through a cost increase is to reduce the frequency of promotional discounts, or offer smaller discounts to consumers. Upstream commodity input prices used in our investigation are wheat and corn futures prices, to account for upstream inputs, and flour and chicken feed producer price sub indices for downstream cost shocks. We combine several datasets for this empirical analysis: commodity prices, commodity price indices, and scanner data on prices for a variety of goods, over a four year time period and across several stores in California, belonging to a large retail chain. We construct quantity weighted price indices within two product categories sold in the supermarket, where prices are weighted by pre-determined quantity weights to obtain shelf price indices and net price indices. For each of the commodities, regressions will be run using store-level product (UPC) weekly data. The reduced form regressions consist of projecting the shelf price index, as well as the net price index, on commodity prices, other explanatory variables and on region and time dummies. The point estimates measure the effect of residual changes in commodity prices, net of seasonal and regional effects, on the prices consumers face when making purchase decisions. We also construct a variable that measures the frequency of price discounts and relate that variable to the same explanatory variables. We estimate pass through behavior using the above three different measures of retail price activity controlling for cost proxies, store-level fixed-effects and regional time trends using panel data estimation techniques. Results suggest that an important part of retail price variation comes from promotional activities, and the usual shelf price index would underestimate the true pass through coefficient. To deal with omitted variables and price stickiness we included a lagged dependent variable, using the Arellano-Bond dynamic panel estimator. For Chicken the results show that using standard information on regular shelf price leads to an underestimation of the true pass-through coefficient. For Cereal, using standard shelf prices leads to an overestimation of the pass-through coefficient reflecting the importance of storability faced by consumers and retailers, and industry characteristics in the sale dynamics. Not only do our cost pass-through estimates account for sales we also provide dynamic multipliers for grain commodity price increases to supermarket shelf prices. The estimated dynamic elasticities are not as small as one might expect from a naive model. The elasticity of cereal price with respect to flour is over 1 and the elasticity of chicken price with respect to chicken feed was 30 percent. These estimates would imply a very large price increase in cereal and chicken over the last several years. There are fewer sales when commodity prices go up. From this we would conclude that net prices should be used for pass-through analysis.

This paper provides novel evidence on commodity exposure (impacts of commodity price and terms of trade fluctuations) amongst 46 emerging and developing countries (EMDCs) in Africa, Asia and the Latin American and Caribbean (LAC) region. We focus on the exposures of six macroeconomic variables to the commodity prices and terms of trade, based on the real business cycle (RBC) theory. Our empirical results indicate that, overall, about 10% of the macroeconomic variation amongst the EMDCs is due to commodity market-related exposures. The Asian and LAC economies are especially sensitive to changes in commodity prices. The changes in the prices of world trade have an imminent impact on non-commodity exporting EMDCs. In sum, our results indicate that the commodity market exposure is not unanimous across countries, amongst regions or between measures of exposure.