Analysis of Relationship Between Post-WTO CPI and Commodity Price Index

Based on post-WTO sample data ranging from 2003 to the first quarter of 2009, this paper investigates the relationship between CPI and commodity price index after China has entered World Trade Organization (WTO) and fulfilled its promise of opening certain sectors. Granger casualty test is employed to conduct this research and the test result shows that the most international commodity price index, Rogers International Commodity Index (RICI), can transfer the change of commodity price to CPI with a time lag of two quarters. As institutional investors looking for asset classes with a decent return and beat CPI at the same time, investment in commodity price index could be a solution. In addition, reorganization of business cycle phase is important for commodity price index investing as the index fluctuates tremendously when economic condition changed.