Nat Gas and Oil Confirm Once Again Their ‘Inflation-Hedge’ Status

• Historically, investors have viewed energy commodities as the best 'inflation hedges' when inflationary pressures start to rise.
  • The bottom chart shows the average monthly performance of 10 of the most traded commodities since 1980 (Times series start in 1983 for oil, 1989 for copper and 1990 for Nat gas) when inflation is accelerating (i.e. 1Y change in CPI inflation is positive).
  • Oil and Nat gas come at the top, averaging 1.9% and 1.7% in monthly returns.

• Hence, with inflation constantly surprising positively in most of the DM and EM economies in the past year, momentum on energy commodities has remained firm since the beginning of 2021.
• The top chart shows that WTI and Nat gas have been the second and third best performing commodities since the start of last year, up 95% and 82%, respectively.
• The best performing commodity since the start of 2021 has been coffee (up 97.5%), which production has been significantly impacted by the supply chain disruption and natural phenomenon.
  • As a reminder, the drought in Brazil last year has been one of the major factors behind the increase in prices, with some of the biggest coffee farms in the world receiving less than half of the usual rainfall that they were expecting.
  • According to analysts, drought and severe frost are estimated to have destroyed over 20% of Brazil’s coffee plants (Brazil accounts for half of the world total supply).

Source: Bloomberg/MNI.