Recent Inflationary Trends in World Commodities Markets

IMF Working Papers, May 1, 2008

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Recent Inflationary Trends in World Commodities Markets

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Bibliographic details

• Authors: Noureddine Krichene
• Published: May 1, 2008
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451869897.001

Summary findings

• Expansionary monetary policies in key industrial countries and sharply depreciating U.S. dollar exchange rate sent commodities prices soaring at unprecedented rates during 2003-2007.
• Food prices rose to alarming levels threatening malnutrition and food riots.
• Consumer price indices, a leading indicator for monetary policy, were showing almost no inflation despite record low interest rates, double digit commodities inflation, and sharp exchange rate depreciation.
• Commodities prices were shown to be driven by one common trend, identified as a monetary shock.

Analysis of drivers

• Monetary conditions: Expansionary monetary policies in key industrial countries are identified as a primary driver of the commodities price surge.
• Exchange rate movements: A sharply depreciating U.S. dollar exchange rate is linked with the commodities price increases.
• Common trend identification: Empirical evidence in the paper attributes commodities price behavior to a single common trend—referred to as a monetary shock.
• Inflation measurement puzzle: Consumer price indices did not reflect the commodities inflationary pressures, creating a price puzzle for monetary policymakers.

Policy dilemma and scenarios

• Policymakers may face a choice between:
  • Maintaining an expansionary monetary policy stance, with potential outcomes of accelerating commodities price inflation, subsequent world recession, and financial disorder.
  • Tightening monetary policy, with potential outcomes of subsequent world recession followed by recovery and financial and price stability.

Subjects and keywords (as provided)

• Subject: Commodity price indexes, Commodity prices, Inflation, Oil prices, Price indexes
• Keywords: commodities price, federal funds rate, monetary policy, WP

Source: Noureddine Krichene, "Recent Inflationary Trends in World Commodities Markets", IMF Working Paper (May 1, 2008).

Content in this bundle

• 1. Commodity Price Indices, Annual Percent Change, 1973–2007
  • 1. Commodity Price Indices, Annual Percent Change, 1973–2007 (Markdown version)
  • 1. Commodity Price Indices, Annual Percent Change, 1973–2007 (PDF)