Commodity Pricing and Inflation Expectations

Abstract

This study will focus on investigating the effects of crude oil and gold prices on implied inflation expectation. “Crude oil is arguably one of the single most important driving forces of the global economy, and changes in the price of oil have significant effects on economic growth and welfare around the world” (Rentschler, 2014). Gold prices attract considerable attention as potential predictor of inflation as well. The study reveals that crude oil prices are positively and significantly related to inflation, while the link between gold and inflation proves to be very limited. The process of inflation expectation as a function of oil and gold prices is subject to some pronounced ARCH type shocks but it is not very persistent. Based on the results of conducted research I conclude that implied inflation expectations are correlated with high oil prices.