The commodity market is a physical or a virtual market place where
market participants meet and buy or sell positions
on commodity products like oil, gold, copper, silver, wheat, barley.
Inflation causes a decrease in the value of a currency & increase in the value
of goods & services with time.
In the mid-2010s, the global economy witnessed the U.S. dollar gain steam
against other major currencies and saw oil prices freefall.
The commodity markets are quoted in U.S. dollars so we can say, that when
the dollar rises, commodity prices will decrease. Simply, a stronger U.S.
dollar will impact inflation through commodity prices.
Commodities to Inflation :-
Increases in oil prices were behind a strong increase in the price of goods
and services. The reason for this is that oil is a major input in the economy
and is used in critical activities such as heating homes and fueling cars. If
the cost of oil increases, then the cost of manufacturing plastics, synthetic
materials or chemical products will also rise.
Inflation has increased in recent months. As measured by the Consumer
Price Index (CPI) for urban consumers, the inflation rate was above 8.0% in
the last three months: 8.6% in March, 8.2% in April, and 8.5% in May.
Reasons for increasing inflation during the last half of
COVID and responses led to a recessionary period in which consumer spending
slowed and savings increased, bringing about increased spending from pent-up
demand as economic activity resumed.
The pandemic caused supply chain disruptions. Now, global markets are attempting to
adjust to consumer demand for products and services that have changed from pre-
COVID levels. Adjustments are leading to shortages, overall difficulties in meeting
consumer demand, and higher prices.
Prices have increased, because of both governmental policies and the Ukraine-Russia
Food prices have increased because of strong global demand.
Higher labour costs as employers raise wages to attract workers. Labour wage inflation
that often translates into higher general inflation.
Let’s take an example:-
Corn and Soybean Prices
Over time, corn and soybean prices do not share the same patterns as
• 1960 to 1972. From 1960 to 1972, corn prices averaged $1.17, and
$2.70 per bushel.
• 1973 to 2005. From 1973 to 2005, corn prices averaged $2.36 per
averaged $6.00 per bushel.
• After 2006. From 2006 to 2022, corn prices have averaged $4.22 per
have averaged $10.00 per bushel.
Common Effects of Inflation :-
Inflation, the sustained and broad rise in the prices of
goods and services over time, erodes purchasing
Real estate, energy commodities and value stocks
have historically outperformed during periods of high
or rising inflation.
Conversely, bonds and expensive growth stocks tend
to lag as inflation lowers the present value of their
What will inflation look like in future ?
Current inflation is temporary and reverts to recent historical norms
as supply chain disruptions settle in 2022 and consumer demand for
services vs. goods rebalances.
Inflation settles at 3-4% through 2024 as supply chain disruptions
persist and the labor supply remains somewhat constrained.