Investable Commodity Indexes and Inflation: A Brief History

Bob Greer

In this chapter, we present a brief history of investable commodity indexes, and discuss the link between inflation and commodity prices.

The first section covers the 1970s, and the effect of energy and food price spikes on inflation and traditional asset classes. Commodity futures are discussed next, as well as the author’s work in building the first investable commodity index. A brief recap of the evolution in commodity indexing and investment vehicles until the present day11 That is, the time of writing in autumn 2011. follows. We then conclude with a discussion of commodities as an inflation hedge.

COMMODITIES SHOCKS AND INFLATION

Awareness of the relationship between commodities and inflation was heightened during the 1970s. Oil price shocks, at the height of the OAPEC embargo in 1973–4,22 The Organization of Arab Petroleum Exporting Countries (OAPEC) is a multi-governmental organisation, with headquarters in Kuwait, which coordinates energy policies between oil-producing Arab nations. In 1973 it resolved to cut oil production in response to the US decision to resupply the Israeli military during the Yom Kippur War. While many members of OAPEC are also members of the

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