Monetary Policy, Commodity Prices and Infl ation – Empirical Evidence from the US

The past years were characterized by unprecedented rises in prices of commodities such as oil or wheat and inflation rates moved up above the mark of two percent per annum. This led to a revival of the debate whether commodity prices indicate future CPI inflation and if they can be used as indicator variables for central banks or not. We apply various econometric methods like Granger causality tests and SVAR models to US data. The results corroborate the notion that there was a strong link between commodity prices and CPI inflation in the 1970s and the beginning of the 1980s. For a more recent sample, the relationship has weakened, respectively diminished.