Commodity Prices and Inflation Expectations in the United States

Download or read book Commodity Prices and Inflation Expectations in the United States written by Oya Celasun and published by International Monetary Fund. This book was released on 2012-03-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk.