The Consumer Price Index has been a hot topic lately. This is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. If you go to www.bls.gov you can find the latest data. The Consumer Price Index gets updated once a month.
Why does this matter? Many of the factors that go into the CPI stem from commodities. Food, Energy, Apparel. CPI gets a broader audience since the inflation rate is one major indicator the federal reserve monitors and refers to as they adjust policy.
“We want to see inflation above 2% for at least a year before we hike rates”- Federal Reserve during their latest FOMC meeting.
Many people make reference to commodity super cycles. Some will say that we are currently in the beginning of a new super cycle. The most recent “Super Cycle” was in 2008. This was fueled by higher energy prices. Oil was above $100/barrel and grains were at some of their highest prices ever. 2008 was also one of the nation’s largest stock market busts. Commodities higher and Equities lower.
What’s the cure for High prices?…High prices. The $100/barrel oil and $7.00 corn curbed demand and spurred production. Within a few years oil and grains were overproduced and went below breakeven. Commodity markets are cyclical. Since there is a lag time in production and demand it can create extreme highs and extreme lows. This is why producers of commodities hedge their risk using futures.
Futures prices may have already factored in the seasonal aspects of supply and demand. Unless otherwise indicated, this is not to be an offer to sell or a solicitation to buy any futures or options on futures contracts. This data is from sources we believe to be reliable but cannot guarantee its accuracy. Opinions expressed are subject to change without notice. Trading commodity futures and options on futures involve substantial risk and may not be appropriate for everyone. Past performance may not necessarily be indicative of future results.