Whether its unique shocks or general price movements, the commodity-inflation relationship doesn’t always hold.
The higher price of commodities in foreign currency will work to lower demand and dollar-priced commodities.
In this scenario, increasing commodity prices abroad could cause domestic deflation.
How does commodity prices affect inflation?
A decrease in unemployment or an increase in economic activity is seen as a potential inflationary trigger. Some other triggers, such as increases in commodity prices or workers wages, are also regarded as potential threats.
Do commodities go up with inflation?
Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services.
Does inflation cause prices to rise?
Both types of inflation cause an increase in the overall price level within an economy. Demand-pull inflation occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy’s productive capacity. Rising energy prices caused the cost of producing and transporting goods to rise.
Why do commodity prices fall when the dollar rises?
When the value of the dollar rises, the price of commodities measured in other currencies rises. When raw material prices rise, demand tends to fall. Conversely, during periods of dollar weakness the price of raw materials tend to fall in other currencies and lower prices tend to increase demand.
Photo in the article by “Wikipedia”