Do big increases in commodity prices always lead to sharp increases in inflation? And while we’re pondering the topic, does a large drop in commodity prices invariably trim inflationary pressures? On both counts the answer is… no. Or so a new research essay from the Chicago Fed argues.

In particular, the article reports: “Clearly, higher prices of food and energy end up in the broadest measures of consumer price inflation, such as the Consumer Price Index. Since the mid-1980s, however, sharp increases and decreases in commodity prices have had little, if any, impact on core inflation, the measure that excludes food and energy prices.”
That’s no guarantee that the surging commodity prices of late won’t trigger higher inflation this time. But at least we can say this much with some degree of confidence: A jump in commodity prices doesn’t automatically lead to higher inflation. That’s no excuse to stop monitoring inflation’s ebb and flow, but it’s a reminder that commodities markets alone don’t dictate broad pricing trends. The details of monetary policy matter too, and quite possibly dominate the future path of inflation.
What’s the glitch? Critics will no doubt argue that core inflation is bogus. Perhaps, although there’s been quite a few studies over the years (including some from economists outside the Fed) that show that core inflation is a pretty good predictor of headline inflation down the road.