Schweser emphasizes that only storable commodities like energy, and not agricultural commodities, provide an effective inflation hedge. Yet, in one of the CFAI 2014 mocks, they say that agricultural commodities can provide an inflation hedge, perhaps not as much as storable, but nonetheless still provide some hedge. I got the question wrong as a result. I thought agricultural commodities provide 0 hedge during unexpected inflation?
I tought agricultural provided negative correlation agains unexpected inflation. Just cheked the curriculum and it says the same… maybe is an erratum.
Yeah, because the explanatin to the question is: Agricultural commodities do not necessarily increase the expected portfolio return. Although somehwat less so for agricultural commodities than for energy, one of the principal roles that have been suggested for commodities in portfolios is as an inflation hedge during times of unexpected inflation and as a source of natural return over the longer term.
What I read was that livestock doesn’t provide an effective hedge whereas storable commodities do. I hope they’ll be specific on the exam.
Non cyclical commodities should provide inflation hedge ; IMO any commodity that can pass thru inflation into its price, should be able to provide the hedge; correct me if wrong
Storable and nonperishable …
Just to confirm ,agricultural commodities do not provide an inflation hedge, right?
OKay I realize the reason after I rationalized it. Agriculture does provide inflation hedges, since any real (non-financial) objects moves with inflation. However it doesn’t provide unexpected inflation hedging. You aren’t able to hold unto a perishable good to sell it at a later time, when inflation (expected + unexpected) catches up to prices. For non-perishable you are able to hold onto it until you feel it’s the right momemt to sell.
Hey guys, have just done this same question and was frustrated myself - the CFAI curriculum book has a goddamn table (book 5, page 54) that very clearly lays out that the GSCI Agri Index is negatively correlated (-0.27) to unexpected inflation.
How the hell are we supposed to answer these questions correctly when they just totally contradict the ******* course material?
I ran into the same problem. CFAI text actually references the potential negative correlation of agriculture with inflation. Came to the conclusion that it was a very poor question.
They provide inflation hedge but not in the event of unexpected inflation hedge. However, there’s a part in the book that says that they do provide inflation hedge against losses in bonds in the event of unexpected inflation (since inflation rises interest, thus price of bonds would fall).