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April 2012, Vol. 135, No. 4
Impact of commodity price movements on CPI inflation
Richa Ajmera, Nancy Kook, and Jeff Crilley
Richa Ajmera and Nancy Kook are economists in the Office of Prices and Living Conditions, Bureau of Labor Statistics; Jeff Crilley is an industry economist with the U.S. Commodity Futures Trading Commission. Email: firstname.lastname@example.org, email@example.com, or firstname.lastname@example.org.
An analysis of price movements of four commodities–crops, animal slaughter and processing, dairy, and oil and gas– reveals that only oil and gas prices had a considerable impact on CPI inflation; thus, even large increases in the prices of the first three of these commodities do not necessarily contribute substantially to inflation
A worldwide surge in commodity prices that began in late 2006 and ended in mid-2008 generated interest in studying the effects of commodity price movements on consumer prices. During this period, prices for commodity crops nearly doubled while prices for oil and natural gas more than doubled. In a recent article, Bart Hobijn of the Federal Reserve Bank explored the relationship between commodity price changes (for crops, oil, and natural gas) and changes in inflation as measured by the Bureau of Economic Analysis (BEA).1 Hobijn analyzed BEA's Personal Consumption Expenditures (PCE) Price Indexes from June 2006 through June 2008, to determine the extent to which commodity price swings affected the price of final consumer goods. Hobijn found that the commodity price increases translated into larger price increases in the United States only for those goods most closely related to the commodities in question. The contribution of the price surges to overall inflation was less pronounced.
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