Commodity prices and monetary policy: old and new challenges

Fernando Avalos, Ryan Banerjee, Matthias Burgert, Boris Hofmann, Cristina Manea and Matthias Rottner

No 96, BIS Bulletins from Bank for International Settlements

Abstract: Major price increases in energy and food were key drivers of the 2021–22 inflation surge. These large supply-driven commodity price increases, occurring when inflation was already elevated in many countries, increased the risk of moving to a high-inflation regime. Central banks have tended to look through commodity price fluctuations due to their often transitory nature and the implied trade-off between inflation and output stabilisation in the case of supply-driven price shocks. Growing geopolitical disruptions, climate change and a bumpy transition to green energy threaten to make commodity price shifts larger and more frequent going forward. This potentially raises greater risks for price stability, thereby limiting the scope for monetary policy to look through them.

Pages: 8 pages
Date: 2025-01-08
New Economics Papers: this item is included in nep-agr, nep-cba, nep-ene and nep-mon
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