Commodities, Inflation and Growth: Implications for Policy and Investments

Ric Deverell and Kamal Naqvi

In this chapter, we discuss the link between commodity prices, inflation and real economic growth. We start with a review of the effect commodity prices have on inflation, comparing and contrasting developed and emerging markets, and analysing 2008 as a detailed case study. Next, we discuss how higher commodity prices influence monetary policy, and compare different policy approaches from three major central banks (the US Federal Reserve, the European Central Bank and the People’s Bank of China). A section discussing the relationship between commodity prices and economic growth follows; the key mechanisms through which commodities influence the real economy are introduced, and the effect of growth imbalances between developed and emerging markets is explained. Finally, we discuss how commodity investments might be used, either to hedge higher inflation or to lower growth. A summary section concludes the chapter.


The impact of commodities on inflation continues to be a hot topic among academic economists and policymakers alike.11 See, for example, Cecchetti and Moessner (2008), Fry et al (2009), Hobijn (2008) and Lipskey (2008). However, while it is

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