Key takeaways

  • Changes in commodity prices continue to drive overall inflation trends.

  • A decline in energy prices contributed to a slower pace of inflation as measured by the Consumer Price Index (CPI) at the end of 2023.

  • Commodity prices can have a major impact on the direction of the overall economy.

Commodities represent close to 40% of the Consumer Price Index (CPI) calculated by the U.S. Bureau of Labor Statistics. More specifically, energy represents about 7% of the index and food close to 14%.1 Commodity prices can add significant volatility to headline CPI numbers. At the same time, expenses like groceries, gas to fuel motor vehicles and home heating and cooling are essential costs facing consumers. Justifiably, commodity prices garner significant attention.

Commodities comprise a range of raw materials such as:

  • Energy products including crude oil and natural gas
  • Metals such as gold, silver, copper and platinum
  • Agricultural products including wheat, corn, sugar and coffee

Over the 12-month period (ending in October 2023), commodity prices rose just 0.4%. This is a notable departure from a year earlier, when commodity prices were up more than 8.5% year-over-year.2

Source: U.S. Bureau of Labor Statistics.

What is the likely direction of commodity prices going forward, and how should investors consider positioning their portfolios to reflect these trends?


Oil prices fluctuate in 2023

Energy prices are subject to a wide range of variables, particularly because oil prices are mostly based on developments that take place across a global marketplace. Crude oil prices closed at $10.17/barrel in April 2020, just as the global economy was in the midst of a virtual shutdown in the early days of the COVID-19 pandemic. It was an unsustainable price reflecting temporary fears of far-reaching economic fallout arising from the pandemic and activity restrictions. Once the economy recovered, oil demand steadily rose while supplies remained relatively stagnant. In early June 2022, the price of a barrel of crude oil topped $120. From late 2022 until August 2023, the price of oil mostly traded in a range of $70 to $80/barrel. Then it jumped to more than $90/barrel in September 2023 before dropping to the low $70/barrel range by mid-November.3 “Part of the price drop is that demand for oil usually declines in the winter as there tends to be less driving,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Markets may also reflect concerns about economic weakness in China, which could dampen demand.” At the same time, U.S. crude oil production has reached record levels while crude oil inventories are trending higher.4 This has partly offset the impact of a production cutback by Saudi Arabia and Russia.

“We still live in a world that is short of oil given the ongoing demand. Five-year rolling inventory levels are low, so if demand for oil picks up, prices are likely to rise as well,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management.

Many forecasters are still prepared for a U.S. economic slowdown, according to Haworth. If such a slowdown occurs, it would likely dampen domestic oil demand in the near term, which could put downward pressure on oil prices.

Haworth notes in the long-term, oil prices could trend higher. “We still live in a world that is short of oil given the ongoing demand. Five-year rolling inventory levels are low, so if demand for oil picks up, prices are likely to rise as well.”


Other commodity prices rise

While oil prices were, as of mid-November, below their price at 2023’s outset, other commodities, such as agricultural products and metals gained in value. “The Russia-Ukraine war and potential interruptions of grain deliveries from those two agricultural-exporting countries adds a degree of uncertainty to the grain commodities market,” says Haworth. While instability in that region contributes to grain price volatility, weather will ultimately be the biggest factor affecting prices for agricultural commodities, according to Haworth. “Wheat, corn and soybean prices rose in mid-summer 2023, but not above previous high levels.” Food prices have eased from earlier highs. In October, food costs, as measured by CPI, rose only modestly, and are 3.3% higher than a year earlier, in line with the overall inflation rate.2

Metals prices can be considered in two categories – precious metals such as gold and silver, and industrial metals used in manufacturing, such as nickel and copper for electric vehicle batteries. “Gold prices peaked in early May 2023 at $2,057/ounce, then dropped to a low of $1,834/ounce in October before the price recovered to just shy of $2,000/ounce in mid-November. “Gold is often viewed as an inflation hedge, but with inflation scaling back (from a peak of 9.1.% for the 12 months that ended in June 2022 to 3.2% for the one-year period ending October 20235), gold may not hold the attraction it once did,” says Haworth.

As for industrial metals, Haworth says supply concerns are an issue, particularly with more robust demand driven by increased production of electric vehicles. “At the same time, the surprising turn toward slower growth in China in recent months may dampen near-term demand for industrial metals,” according to Haworth.


Investor considerations around commodities

Investors sometimes consider including commodities in a portfolio to hedge the impact of higher inflation. Haworth says there are limited benefits with commodities investments. “It’s difficult to earn a durable return with direct investments in commodities or commodity futures,” he warns.

“The primary challenge in doing so is that historically, it’s a very volatile asset class,” says Haworth. “Investing in commodities often requires that you make two good decisions – to buy at the right time and to sell at the right time.”

Yet there are other approaches that can provide portfolio benefits in certain environments. One effective way to capitalize on today’s commodities market is through investments in infrastructure. This includes companies involved in oil pipelines, airports, cell towers, toll roads and other forms of infrastructure. “There is strong demand in many of these areas today,” says Haworth, “but benefitting from owning these investments doesn’t always require that prices move higher. These investments also generate regular income for investors.” Haworth says companies in infrastructure-related businesses tend to have fixed costs but realize bigger profits in times when inflation drives prices higher.

Investors should be prepared for frequent changes, both higher and lower, in commodity prices. Talk with your financial professional about opportunities to position your portfolio to capitalize on market trends stemming from the commodities trade.

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  1. U.S. Bureau of Labor Statistics, “Relative importance of different expenditure categories,” August 2023.

  2. U.S. Bureau of Labor Statistics, “Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, special aggregate indexes.

  3. Source:, Crude Oil WTI, New York Mercantile Exchange, Front Month price.

  4. Kimball, Spencer, “U.S. crude oil prices fall 5% as supply grows amid demand worries,”, Nov. 16, 2023.

  5. U.S. Bureau of Labor Statistics, “Consumer Price Index Summary, October 2023,” Nov. 14, 2023.

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