Inflation Hedging in the Long Run: Perspectives from Seven Centuries of Commodity Prices

In Inflation Hedging in the Long Run: Perspectives from Seven Centuries of Commodity Prices, published in the Summer 2021 issue of The Journal of Alternative Investments, Adam Zaremba of Montpellier Business School, Jan J. Szczygielski of Kozminski University, Zaghum Umar of Zayed University and Mateusz Mikutowski of Poznan University of Economics and Business investigate the efficacy of using commodities to hedge inflation risk. They analyze the relationship between inflation and various commodity price indexes across varying lengths of time and regions. The evaluation includes rolling correlations to see if relationships change over time. Results illustrate that commodities can be very effective hedging tools. However, some commodities do a better job than others. The optimal choice depends on what regions' or countries' inflation risk one seeks to mitigate, and the optimal choice can change as conditions change in the future. For examp le, in many countries, agricultural commodities used to be among the best hedging instruments but have since been displaced by energy commodities.