Inflation Cycles and Metals Prices

Abstract

A leading index of inflation, developed and published monthly by the Center for International Business Cycle Research at Columbia University, has been designed to anticipate swings in broad measures of inflation such as the consumer price index. It generates signals indicating when the rate of inflation is likely to move up or down. Since metals prices are sensitive to the same types of economic factors that influence the overall inflation rate, we have examined the behavior of metals prices during intervals marked off by the signal dates. Between 1949 and 1986 the producer price index for metals and metal products moved up at an average annual rate of 6.7% when the leading index signaled an upswing, compared to a 1.7% rate during the remaining intervals. Aluminum scrap prices rose at a 15% average rate during the upswing signals but declined at an 11% rate otherwise. Copper scrap and zinc prices behaved similarly. The leading index of inflation appears to be a promising tool for forecasting short-run trends in metals prices.