## commodityspecialfeature

## Source details

**Canonical URL:** [commodityspecialfeature](https://www.imf.org/-/media/files/publications/weo/2023/october/english/commodityspecialfeature.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/weo/2023/october/english/commodityspecialfeature.pdf.md)
- [Structured JSON version](/-/media/files/publications/weo/2023/october/english/commodityspecialfeature.pdf.json)

---

### Commodity Market Developments (Section 1)
- Primary commodity prices declined by 7.5 percent between February and August 2023.
- Base metals prices fell 15.7 percent between February and August 2023.
- European natural gas prices declined 36.0 percent between February and August 2023.
- Crude oil prices increased by 4.4 percent between February and August 2023, remaining well below their peak of $115 in June 2022.
- OPEC+ announced output curbs of 1.2 million barrels a day (mb/d) in April 2023, coupled with additional voluntary cuts of 1 mb/d by Saudi Arabia and 0.3 mb/d by Russia.
- US oil output is expected to increase by 1.1 mb/d in 2023.
- Russian oil is trading above the $60 price cap imposed by the Group of Seven (G7) countries.
- Futures markets imply crude oil prices will average $80.5 a barrel in 2023 (a slide of 16.5 percent year over year from $96.4 in 2022) and fall to $72.7 in 2026.
- International Energy Agency expects oil demand to increase by 2.2 mb/d, reaching 102.2 mb/d in 2023.
- Title Transfer Facility trading hub prices declined 36 percent from February to August 2023 to a monthly average of $10.7 a million British thermal units (MMBtu).
- Asian LNG prices declined by 26.4 percent between February and August 2023.
- US Henry Hub prices increased by 8.6 percent from February to average $2.6/MMBtu in August 2023.
- Title Transfer Facility futures suggest average annual prices could move from $13.6/MMBtu to $17.5/MMBtu in 2024 and then down to $9.1/MMBtu by 2028.
- US Henry Hub prices are expected to rise from an annual average of $2.7/MMBtu in 2023 to $3.9/MMBtu in 2028.
- Base metal price forecasts revised downward since April 2023 WEO: projected to decline by 4.7 percent in 2023 and 7.1 percent in 2024.
- IMF’s food and beverage price index lost 6.7 percent between February and August 2023.
- Grain prices fell 20.7 percent between February and August 2023 but remain 7.7 percent above the average of the past five years.
- Recent export restrictions include measures by India, the world’s largest rice exporter.
- Risks to agricultural prices are tilted to the upside, notably from the end of the Black Sea Grain Initiative and uncertain effects of El Niño.

### The Commodity Price Channel of Monetary Policy — Conceptual Framework (Section 1)
- US monetary policy can affect commodity prices through four channels:
  - Cost-of-carry channel: affects opportunity cost of commodity storage.
  - Real-economy channel: affects current and future commodity consumption.
  - Liquidity-and-portfolio channel: affects financial conditions and trading liquidity.
  - Exchange rate channel: most commodities are traded in dollars.
- Analysis focuses on US monetary policy shocks because US monetary policy is a key driver of the global financial cycle and the bulk of cross-border capital flows are dollar-denominated.

### Empirical Approach and High-Frequency Results (Section 1)
- Local projections (Jarociński and Karadi 2020 approach) used to estimate effects of US monetary policy shocks on commodity prices for 1990–2019 (dollar-denominated commodity prices).
- A 10 basis point monetary policy surprise leads to:
  - 2.5 percent drop in the base metal price index (peak response after about 20 days).
  - 2 percent drop in oil prices (peak response after about 20 days).
  - Gold price drops by 1.1 percent after 23 days.
  - Food price responses (e.g., cereals) are smaller (less than 1 percent) and less precisely estimated.
- Results are consistent with cost-of-carry and real-economy channels; effects are stronger for highly storable commodities (for example, base metals).
- Natural gas (Henry Hub) responses are not considered in the baseline because of structural changes in gas markets; for 1990–2019 gas prices do not respond to US monetary policy, but for 2016–19 a significant decline in gas prices after US tightening is observed.
- US dollar appreciates by 0.4 percent following a monetary policy shock, but the impact is short-lived.

### Spillbacks to the US Economy and Spillovers to Other Countries (Section 1)
- Monthly proxy–structural vector autoregression used to estimate spillbacks and spillovers; focus on prices of food and oil due to direct effects on headline inflation.
- A 10 basis point increase in the US federal funds rate induces:
  - A 2 percent decline in oil prices on impact, with effect persisting for eight months.
  - A 1 percent decline in food prices, with a less persistent effect.
- Headline CPI, industrial production, and the exchange rate respond in line with standard textbook implications of monetary tightening.
- To isolate the commodity price channel, impulse responses are re-estimated under the condition that US monetary policy has no effect on (1) oil prices and (2) both oil and food prices:
  - Absent oil and food price responses, headline CPI would have declined by 0.07 percentage point rather than by 0.12 percentage point in the first half-year after the shock — implying a 41 percent contribution of the commodity price channel to the initial CPI response.
  - An instrumental variable–local projection mediation analysis finds an average commodity price contribution of 43 percent over a half-year period.
- Oil prices have a dominant role because oil prices affect food prices but not vice versa.
- Cross-country analysis (24 countries) decomposes the effect of US monetary policy on foreign CPI into the part mediated by commodity prices; most countries’ CPIs decline after a US monetary tightening.

### Key Statistics and Forecasts (Section 1)
- Primary commodity prices: −7.5 percent (Feb–Aug 2023).
- Base metals: −15.7 percent (Feb–Aug 2023).
- European natural gas: −36.0 percent (Feb–Aug 2023).
- Crude oil: +4.4 percent (Feb–Aug 2023); peak $115 in June 2022.
- OPEC+ cuts announced: 1.2 mb/d; Saudi Arabia voluntary cut: 1 mb/d; Russia voluntary cut: 0.3 mb/d.
- US oil output expected increase: 1.1 mb/d in 2023.
- Futures-implied crude oil average: $80.5 a barrel in 2023 (−16.5 percent y/y from $96.4 in 2022); $72.7 in 2026.
- IEA oil demand increase: 2.2 mb/d to 102.2 mb/d in 2023.
- Title Transfer Facility: $10.7/MMBtu monthly average (Aug 2023).
- Asian LNG: −26.4 percent (Feb–Aug 2023).
- US Henry Hub: +8.6 percent (Feb–Aug 2023); $2.6/MMBtu in August 2023.
- Title Transfer Facility futures: $13.6/MMBtu to $17.5/MMBtu in 2024; $9.1/MMBtu by 2028.
- US Henry Hub expected: $2.7/MMBtu in 2023; $3.9/MMBtu in 2028.
- Base metal forecast revisions: −4.7 percent in 2023; −7.1 percent in 2024.
- IMF food and beverage price index: −6.7 percent (Feb–Aug 2023).
- Grain prices: −20.7 percent (Feb–Aug 2023); +7.7 percent versus five‑year average.
- Monetary policy shock magnitudes:
  - 10 basis point US monetary policy surprise → −2.5 percent base metal index; −2 percent oil; −1.1 percent gold (after 23 days).
  - 10 basis point US federal funds rate increase → −2 percent oil on impact (persisting eight months); −1 percent food on impact.

### Role of the Commodity Price Channel (Section 2)
- For the average country, the commodity price channel accounts for 66 percent of the total spillover of US monetary policy onto inflation in the first half-year.
- The oil price alone contributes 48 percent.
- Monetary policy has a strong direct effect on commodity prices, especially those of industrial and storable commodities such as oil and metals.
- Spillbacks and spillovers to other countries from US monetary policy shocks are fast.
- After a 10 basis point monetary policy shock, the decline in oil and food prices over the course of six months reduces both domestic and other countries’ inflation by 0.05 percent on average.
- The commodity price channel accounts for 41 percent of the total decline in US headline CPI.
- The commodity price channel accounts for 66 percent of the total decline in headline CPI for the average country in the sample.
- There is no significant commodity price channel for core inflation.
- Spillovers from US monetary policy shocks tend to be more relevant for consumer prices in other advanced economies; the reaction of consumer prices in emerging market economies and their commodity price channels are less precisely estimated because emerging markets tend to have more regulated prices.
- The commodity price channel could be strengthened in periods of high monetary policy coordination, given the Federal Reserve’s influence and the potential for other major central banks (for example, the European Central Bank) to affect commodity prices.

### Asymmetric Pass-Through (Section 2)
- Tests examine whether:
  - pass-through from global commodity prices to domestic consumer prices increased during the recent episode of heightened inflation;
  - producers pass cost increases to consumers more readily than cost decreases; and
  - larger and faster commodity price changes (more salient shocks) elicit larger pass-through.
- For food inflation:
  - No evidence that pass-through is higher during commodity price booms than busts.
  - No evidence that pass-through for price increases is larger than for price decreases.
  - Some evidence that food price pass-through is heightened for larger (and thus more salient) shocks.
- For energy inflation:
  - Some evidence shows that the pass-through of large oil price shocks to domestic energy inflation could be twice the size of that for small ones.

### Empirical Findings and Figures (Section 2)
- Figure descriptions:
  - Figure 1.SF.5: contribution of oil and food prices in transmission of US monetary policy shocks; blue and red squares are the average one-year response of CPIs after an increase of 10 basis points in the US interest rate; error bars are 68 percent confidence intervals.
  - Figure 1.SF.6: asymmetric pass-through of commodity price shocks; Panel 1: Response of Energy Inflation to 1 Percent Increase in Global Oil Prices; Panel 2: Response of Energy Inflation to 1 Percent Increase in Global Food Prices; shaded area is 90 percent confidence interval.
- Table 1.SF.1 highlights (average response of CPIs to 10 basis point increase in interest rate):
  - United States (0–6 Months benchmark): –0.12
  - United States, No oil: –0.09 (32)
  - United States, Contribution: –0.07 (41) (43)
  - Other Countries (0–6 Months benchmark): –0.07
  - Other Countries, No oil: –0.04 (48)
  - Other Countries, Contribution: –0.02 (66)
  - Note: Percentages in parentheses are contributions of commodity channel. “Contribution MA” presents contribution of overall commodity index from instrumental variables local projection (IV-LP) mediation analysis (MA). CPI = consumer price index; MA = Mediation Analysis.

### Policy Implications and Recommendations (Section 2)
- Major central banks, when setting policy objectives, should consider their spillbacks and spillovers through a commodity price channel.
- Expect stronger pass-through during times of sharp commodity price changes (relative to times of small changes).
- Consider the differential impact on advanced economies versus emerging market economies given regulatory differences and estimation precision.

*Source — Commodity Special Feature, Section 1, World Economic Outlook: Navigating Global Divergences (October 2023).*

### Section 1

### commodityspecialfeature - Section 1

### Commodity Market Developments
- Primary commodity prices declined by 7.5 percent between February and August 2023.
- Base metals prices fell 15.7 percent between February and August 2023.
- European natural gas prices declined 36.0 percent between February and August 2023.
- Crude oil prices increased by 4.4 percent between February and August 2023, remaining well below their peak of $115 in June 2022.
- OPEC+ announced output curbs of 1.2 million barrels a day (mb/d) in April 2023, coupled with additional voluntary cuts of 1 mb/d by Saudi Arabia and 0.3 mb/d by Russia.
- US oil output is expected to increase by 1.1 mb/d in 2023.
- Russian oil is trading above the $60 price cap imposed by the Group of Seven (G7) countries.
- Futures markets imply crude oil prices will average $80.5 a barrel in 2023 (a slide of 16.5 percent year over year from $96.4 in 2022) and fall to $72.7 in 2026.
- International Energy Agency expects oil demand to increase by 2.2 mb/d, reaching 102.2 mb/d in 2023.
- Title Transfer Facility trading hub prices declined 36 percent from February to August 2023 to a monthly average of $10.7 a million British thermal units (MMBtu).
- Asian LNG prices declined by 26.4 percent between February and August 2023.
- US Henry Hub prices increased by 8.6 percent from February to average $2.6/MMBtu in August 2023.
- Title Transfer Facility futures suggest average annual prices could move from $13.6/MMBtu to $17.5/MMBtu in 2024 and then down to $9.1/MMBtu by 2028.
- US Henry Hub prices are expected to rise from an annual average of $2.7/MMBtu in 2023 to $3.9/MMBtu in 2028.
- Base metal price forecasts revised downward since April 2023 WEO: projected to decline by 4.7 percent in 2023 and 7.1 percent in 2024.
- IMF’s food and beverage price index lost 6.7 percent between February and August 2023.
- Grain prices fell 20.7 percent between February and August 2023 but remain 7.7 percent above the average of the past five years.
- Recent export restrictions include measures by India, the world’s largest rice exporter.
- Risks to agricultural prices are tilted to the upside, notably from the end of the Black Sea Grain Initiative and uncertain effects of El Niño.

### The Commodity Price Channel of Monetary Policy — Conceptual Framework
- US monetary policy can affect commodity prices through four channels:
  - Cost-of-carry channel: affects opportunity cost of commodity storage.
  - Real-economy channel: affects current and future commodity consumption.
  - Liquidity-and-portfolio channel: affects financial conditions and trading liquidity.
  - Exchange rate channel: most commodities are traded in dollars.
- The analysis focuses on US monetary policy shocks because US monetary policy is a key driver of the global financial cycle and the bulk of cross-border capital flows are dollar-denominated.

### Empirical Approach and High-Frequency Results
- Local projections (Jarociński and Karadi 2020 approach) used to estimate effects of US monetary policy shocks on commodity prices for 1990–2019 (dollar-denominated commodity prices).
- A 10 basis point monetary policy surprise leads to:
  - 2.5 percent drop in the base metal price index (peak response after about 20 days).
  - 2 percent drop in oil prices (peak response after about 20 days).
  - Gold price drops by 1.1 percent after 23 days.
  - Food price responses (e.g., cereals) are smaller (less than 1 percent) and less precisely estimated.
- Results are consistent with cost-of-carry and real-economy channels; effects are stronger for highly storable commodities (for example, base metals).
- Natural gas (Henry Hub) responses are not considered in the baseline because of structural changes in gas markets; for 1990–2019 gas prices do not respond to US monetary policy, but for 2016–19 a significant decline in gas prices after US tightening is observed.
- US dollar appreciates by 0.4 percent following a monetary policy shock, but the impact is short-lived.

### Spillbacks to the US Economy and Spillovers to Other Countries
- Monthly proxy–structural vector autoregression used to estimate spillbacks and spillovers; focus on prices of food and oil due to direct effects on headline inflation.
- A 10 basis point increase in the US federal funds rate induces:
  - A 2 percent decline in oil prices on impact, with effect persisting for eight months.
  - A 1 percent decline in food prices, with a less persistent effect.
- Headline CPI, industrial production, and the exchange rate respond in line with standard textbook implications of monetary tightening.
- To isolate the commodity price channel, impulse responses are re-estimated under the condition that US monetary policy has no effect on (1) oil prices and (2) both oil and food prices.
  - Absent oil and food price responses, headline CPI would have declined by 0.07 percentage point rather than by 0.12 percentage point in the first half-year after the shock — implying a 41 percent contribution of the commodity price channel to the initial CPI response.
  - An instrumental variable–local projection mediation analysis finds an average commodity price contribution of 43 percent over a half-year period.
- Oil prices have a dominant role because oil prices affect food prices but not vice versa.
- Cross-country analysis (24 countries) decomposes the effect of US monetary policy on foreign CPI into the part mediated by commodity prices; most countries’ CPIs decline after a US monetary tightening.

### Key Statistics and Forecasts (as reported)
- Primary commodity prices: −7.5 percent (Feb–Aug 2023).
- Base metals: −15.7 percent (Feb–Aug 2023).
- European natural gas: −36.0 percent (Feb–Aug 2023).
- Crude oil: +4.4 percent (Feb–Aug 2023); peak $115 in June 2022.
- OPEC+ cuts announced: 1.2 mb/d; Saudi Arabia voluntary cut: 1 mb/d; Russia voluntary cut: 0.3 mb/d.
- US oil output expected increase: 1.1 mb/d in 2023.
- Futures-implied crude oil average: $80.5 a barrel in 2023 (−16.5 percent y/y from $96.4 in 2022); $72.7 in 2026.
- IEA oil demand increase: 2.2 mb/d to 102.2 mb/d in 2023.
- Title Transfer Facility: $10.7/MMBtu monthly average (Aug 2023).
- Asian LNG: −26.4 percent (Feb–Aug 2023).
- US Henry Hub: +8.6 percent (Feb–Aug 2023); $2.6/MMBtu in August 2023.
- Title Transfer Facility futures: $13.6/MMBtu to $17.5/MMBtu in 2024; $9.1/MMBtu by 2028.
- US Henry Hub expected: $2.7/MMBtu in 2023; $3.9/MMBtu in 2028.
- Base metal forecast revisions: −4.7 percent in 2023; −7.1 percent in 2024.
- IMF food and beverage price index: −6.7 percent (Feb–Aug 2023).
- Grain prices: −20.7 percent (Feb–Aug 2023); +7.7 percent versus five‑year average.
- Monetary policy shock magnitudes:
  - 10 basis point US monetary policy surprise → −2.5 percent base metal index; −2 percent oil; −1.1 percent gold (after 23 days).
  - 10 basis point US federal funds rate increase → −2 percent oil on impact (persisting eight months); −1 percent food on impact.

*Italic: Source — Commodity Special Feature, Section 1, World Economic Outlook: Navigating Global Divergences (October 2023).*

### Section 2

### Section 2 — Commodity Price Channel of US Monetary Policy

### Role of the commodity price channel
- For the average country, the commodity price channel accounts for 66 percent of the total spillover of US monetary policy onto inflation in the first half-year.
- The oil price alone contributes 48 percent.
- Monetary policy has a strong direct effect on commodity prices, especially those of industrial and storable commodities such as oil and metals.
- Spillbacks and spillovers to other countries from US monetary policy shocks are fast.
- After a 10 basis point monetary policy shock, the decline in oil and food prices over the course of six months reduces both domestic and other countries’ inflation by 0.05 percent on average.
- The commodity price channel accounts for 41 percent of the total decline in US headline CPI.
- The commodity price channel accounts for 66 percent of the total decline in headline CPI for the average country in the sample.
- There is no significant commodity price channel for core inflation.
- Spillovers from US monetary policy shocks tend to be more relevant for consumer prices in other advanced economies; the reaction of consumer prices in emerging market economies and their commodity price channels are less precisely estimated because emerging markets tend to have more regulated prices.
- The commodity price channel could be strengthened in periods of high monetary policy coordination, given the Federal Reserve’s influence and the potential for other major central banks (for example, the European Central Bank) to affect commodity prices.

### Asymmetric pass-through
- Tests for asymmetric pass-through examine whether:
  - pass-through from global commodity prices to domestic consumer prices increased during the recent episode of heightened inflation;
  - producers pass cost increases to consumers more readily than cost decreases; and
  - larger and faster commodity price changes (more salient shocks) elicit larger pass-through.
- For food inflation:
  - No evidence that pass-through is higher during commodity price booms than busts.
  - No evidence that pass-through for price increases is larger than for price decreases.
  - Some evidence that food price pass-through is heightened for larger (and thus more salient) shocks.
- For energy inflation:
  - Some evidence shows that the pass-through of large oil price shocks to domestic energy inflation could be twice the size of that for small ones.

### Empirical findings and figures
- Figure 1.SF.5 (contribution of oil and food prices in transmission of US monetary policy shocks):
  - Blue and red squares are the average one-year response of CPIs after an increase of 10 basis points in the US interest rate. Error bars are 68 percent confidence intervals.
- Figure 1.SF.6 (asymmetric pass-through of commodity price shocks):
  - Panel 1: Response of Energy Inflation to 1 Percent Increase in Global Oil Prices.
  - Panel 2: Response of Energy Inflation to 1 Percent Increase in Global Food Prices.
  - Shaded area is 90 percent confidence interval.
  - Coefficient on large (small) price movements estimated on subsample of price changes larger than (smaller or equal to) one standard deviation.
- Table 1.SF.1. Average Response of CPIs (Percent)
  - 0–6 Months | 0–12 Months | 12–24 Months
  - United States
    - Benchmark: –0.12
    - No oil: –0.09 (32)
    - Contribution: –0.07 (41) (43)
    - No oil, no food: –0.12
    - Contribution MA: –0.07 (40)
    - –0.06 (47) (40)
    - –0.02
    - –0.02 –
    - –0.01 –
    - –
  - Other Countries
    - Benchmark: –0.07
    - No oil: –0.04 (48)
    - Contribution: –0.02 (66)
    - No oil, no food: –0.07
    - No oil, no food (continued): –0.03 (57)
    - Contribution: –0.02 (74)
    - 0
    - –0.01 –
    - 0
    - –
  - Note: Average response of CPIs to 10 basis point increase in interest rate. Time ranges in each column are average period of decline. CPI = consumer price index; MA = Mediation Analysis.
  - Footnotes in table:
    - 1 Percentages in parentheses are contributions of commodity channel.
    - 2 “Contribution MA” presents the contribution of the overall commodity index from instrumental variables local projection (IV-LP) mediation analysis (MA).

### Policy implications and recommendations
- Major central banks, when setting policy objectives, should consider their spillbacks and spillovers through a commodity price channel.
- Expect stronger pass-through during times of sharp commodity price changes (relative to times of small changes).
- Consider the differential impact on advanced economies versus emerging market economies given regulatory differences and estimation precision.

*Sources: Board of Governors of the Federal Reserve System; US Energy Information Administration; World Bank; Ha, Kose, and Ohnsorge (2021); and IMF staff calculations.*

---


_Source: https://www.imf.org/-/media/files/publications/weo/2023/october/english/commodityspecialfeature.pdf_