c.f. CFAI Vol 5, p57 Did I interpret these inflation hedge conclusions correctly? - Storable commodities have good inflation hedge, since they have Low Positive correlation with Unexpected Inflation (e.g. precious metals). - Nonstorable commodities have weak inflation hedge, since they have Negative correlation with Unexpected Inflation (e.g. agriculture, livestock, nonenergy).
- Storable commodities have good inflation hedge, since they have Low Positive correlation with Unexpected Inflation (e.g. precious metals). Their demand is linked to economic activities. - Nonstorable commodities have weak inflation hedge, since they have Negative correlation with Unexpected Inflation (e.g. agriculture, livestock, nonenergy). They are in more or less constant demand regardless of level of economic activities.
so in a fast-growing economy with inflationary pressures, since agriculture/livestock are not linked to economic activity (people buy them regardless of state of economy), their prices do not increase in concert with economic growth, hence they do nothing to offset inflationary pressures and are poor hedges. storable commodities (metals), which are in higher demand as economic activity increases (as businesses need more raw materials for production etc), increase in price in concert with economic growth, thus offsetting inflationary pressures and providing the better hedge.