How do commodities relate to inflation?

• A. They have little to no effect on inflation rates
• B. They often serve as a hedge against inflation
• C. They decrease in value during inflationary periods
• D. They are sold at fixed prices regardless of inflation

Answer: (B)

Commodities often serve as a hedge against inflation because their prices tend to rise when inflation increases. When the cost of living goes up, the prices of raw materials and essential goods such as oil, metals, and agricultural products also rise. This relationship is due to the inherent value of commodities, which can increase during periods of inflation as demand for tangible assets grows. Investors frequently turn to commodities as a way to protect their purchasing power, leading to rising prices in the commodities markets. Therefore, by investing in commodities, individuals and institutions seek to mitigate the impact of inflation on their overall financial health, making the connection between commodities and inflation particularly significant.