Commodity prices and inflation risk

This paper investigates the role of commodity price information when evaluating inflation risk. Using a model averaging approach, we provide strong evidence in-sample and out-of-sample predictive ability from prices convenience yields to inflation, establishing clear point density forecast performance gains incorporating disaggregated commodities information. The resulting densities are used calculate (ex-ante) risk breaching defined thresholds that broadly characterize periods high low inflation. We find in significantly enhances our pick out tail events level risks associated with volatility prices.