The relationship between inflation and commodities
In fact, over the past 15 years, commodities have experienced a more than 0.80 correlation to changes in the CPI — higher than US and other developed-market equities, REITs and even Treasury Inflation-Protected Securities (TIPS).
With US economic growth accelerating, global economies on the mend and interest rates still historically low, the risk that inflation exceeds the Federal Reserve’s long-term target of 2% is on the rise, as illustrated by 10-year TIPS break-even rates, which represent the difference in yield between 10-year Treasury bonds and TIPS. TIPS break-even rates provide a rough gauge of investors’ expectations for inflation.
10-year TIPS break-even points hint to inflation pressures
Considered in aggregate, I believe 2018 appears to have the markings of a promising year for commodity investors.
This article has been republished with permission from Invesco Powershares.