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).

Related: Using Momentum in a Fixed Income ETF to Navigate an Uncertain Market

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. 

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