Source: The Federal Reserve Bank of Chicago

In the May 2011 Chicago Fed Letter, the Federal Reserve Bank of Chicago issued an article titled, "What are the Implications of Rising Commodity Prices for Inflation adn Monetary Policy?"

From the report: "The recent run-ups in oil and other commodity prices and their implications for inflation and monetary policy have grabbed the attention of many commentators in the media. Clearly, higher prices of food and energy end up in the broadest measures of consumer price inflation, such as the Consumer Price Index. Since the mid-1980s, however, sharp increases and decreases in commodity prices have had little, if any, impact on core inflation, the measure that excludes food and energy prices.

"Some economists argue that rising commodity prices are inflationary and, therefore, require a tightening of monetary policy. Others say rising commodity prices have sometimes led to inflation and sometimes not. Therefore, a monetary policy response may not be required."

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