Journal of Investment Strategies

An inflation-hedging strategy with commodities

Nicolas Fulli-Lemaire


Recent academic studies have shown that, since the mid-1990s, the pass-through of exogenous oil shocks into headline inflation has been increasing, while the pass-through into core inflation seems to have ceased. This paper explores the implications for inflation-hedging portfolios for which these recent works have paved the way, in terms of commodity allocation.We proceed by evidencing a link between the headline-to-core inflation spread and tradable commodities. We subsequently intend to exploit this link in two ways: by devising an efficient strategic allocation using core inflation forecasts to determine the commodities' natural weight in the portfolio as dictated by our macro approach, and by testing a tactical allocation strategy which would time the pass-through cycle to dynamically determine the optimal share of commodities in the allocation.

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