How commodity prices can impact markets and inflation

Investors closely watch commodity prices because changes in oil, food and raw materials can move through household budgets, business costs and inflation data. The Consumer Price Index (CPI), a widely followed measure of consumer inflation, rose 3.7% over the 12 months through September 2026 as energy prices climbed 20.4%. Energy commodities, including gasoline and fuel oil, rose 35.3%, while food prices increased a more moderate 2.5%. ¹

Commodity prices do not move as a single group, and each category reaches consumers through a different channel. Gasoline can change monthly inflation quickly, while higher fertilizer, transportation and production costs may take longer to reach grocery prices. Gold and silver can lift broad commodity indexes without directly changing most household expenses, which helps explain why commodity markets and consumer inflation can send different signals.

What are commodities and how do their prices affect the economy?

Commodities are basic goods used to produce the products and services people buy. The primary economy extracts or grows raw materials such as oil, natural gas, metals, wheat and livestock; the secondary economy turns those inputs into manufactured products; and the tertiary economy delivers services to businesses and consumers. A change in the cost of a key input can therefore travel through several stages before it reaches the final buyer.

Food and energy create the clearest link between commodity prices and consumer inflation because households buy them frequently. Industrial metals such as copper and aluminum influence the cost of construction, machinery, vehicles and electrical equipment, while precious metals often respond more to investor demand, interest rates and the U.S. dollar. Central banks also hold gold as a reserve asset, and investors may view it as a store of value during periods of economic or geopolitical uncertainty.

How commodity prices influence inflation

Commodities account for about 36% of the CPI, but food and energy carry the greatest commodity weight. ¹ The Bloomberg Commodity Index tracks a broader investment basket that also includes agriculture, precious metals and industrial metals used in construction and manufacturing. Different category weights, calculation methods and reporting schedules can create wide gaps between commodity-index returns and CPI inflation, so a rise in the broad index does not automatically produce an equal or immediate rise in consumer prices.

The speed of transmission also varies by category. Consumers see gasoline changes quickly because retail prices adjust frequently, while food prices reflect contracts, inventories, processing, transportation and retailer pricing decisions. Businesses may absorb part of a cost increase, pass it to customers or reduce other expenses, which can delay or soften the effect on measured inflation.

What is driving commodity prices in 2026?

Supply disruptions and geopolitics reshaped commodity prices in 2026 after a mixed 2025. The conflict with Iran restricted shipping through the Strait of Hormuz, pushed oil sharply higher and lifted the Bloomberg Commodity Index 24% in the first quarter before prices pulled back as shipping resumed. The index remained up about 30% year to date through October 21, reflecting substantial gains but also sharp changes within individual markets. ²

“The disruption removed a major source of oil from global markets and forced importers to compete for available supply,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management Group. “The June agreement reopened the strait and eased immediate pressure, but production and trade flows are still working back toward pre-conflict levels.” His comments underscore why investors should distinguish a temporary price spike from a longer-lasting change in available supply.

Economic growth also shapes commodity demand. Expanding manufacturing, construction, transportation and power generation can support energy and industrial-metal prices, while slower global growth can reduce demand. China remains especially influential because its economy consumes large amounts of industrial commodities, although supply constraints, inventory levels and government policy can sometimes outweigh changes in demand.

How oil prices affect inflation and markets

Oil prices react quickly when conflict, production decisions or economic growth alter global supply and demand. West Texas Intermediate crude oil, a U.S. benchmark, traded just above $10 per barrel during the 2020 pandemic shock and reached about $120 after Russia invaded Ukraine in 2022. Prices moved above $100 during the 2026 conflict after ending 2025 in the mid-$50s, then eased as the Strait of Hormuz reopened and supply forecasts improved. ³

The Strait of Hormuz remains a critical energy route with few practical alternatives for global energy shipments. About 20.7 million barrels of oil and other petroleum liquids moved through the strait each day in 2024, and roughly one-fifth of global liquefied natural gas trade used the route. ⁴ A disruption can delay deliveries, raise insurance and shipping costs and lift energy prices even after traffic begins to recover.

Higher oil prices reach the economy through gasoline, diesel, air travel and freight costs. September CPI data showed gasoline prices rising 9.1% in one month and 34.2% from a year earlier, helping lift headline inflation to 3.7%. ¹ Investors also watch whether an energy shock slows consumer spending or keeps interest rates higher for longer, two outcomes that can increase stock and bond market volatility.

How energy and fertilizer costs can raise food inflation

Energy disruptions can increase the cost of producing and transporting food. Countries west of the Strait of Hormuz supply a large share of exported nitrogen fertilizer, so shipping delays can tighten availability and raise costs for farmers. Those increases may take months to reach supermarket prices because farmers, processors, distributors and retailers absorb costs at different stages.

Food inflation remained more contained than energy inflation through September 2026. Food prices rose 2.5% over the 12 months from a year earlier, including a 1.8% increase in grocery prices, while restaurant prices rose 3.5%. ¹ Weather, livestock supply, labor and transportation expenses will help determine whether food inflation stays moderate or accelerates.

Gold prices: Strong gains and sharp reversals

Gold helped lift broad commodity prices in 2025, then reversed sharply in early 2026. After beginning 2025 just above $2,600 per troy ounce, gold ended the year near $4,320 and reached a January 2026 record above $5,400. It then fell nearly 20% from that high by the end of March, illustrating how quickly precious-metal prices can reverse. ²

Investment demand and central-bank purchases now exert greater influence over gold prices than jewelry demand alone. Central banks purchased 863 metric tons in 2025 and added another 289 tons in the second quarter of 2026, while high prices restrained jewelry purchases. Gold-backed exchange-traded funds, which allow investors to buy shares tied to the metal rather than hold it directly, recorded second-quarter outflows before prices later recovered part of their decline. ⁵

Gold and other precious metals can diversify a portfolio, but they do not provide a direct or consistent measure of current consumer inflation. Prices often respond to real interest rates, the U.S. dollar, investor risk appetite and demand for perceived stores of value. Future gains will depend on whether investors and central banks continue buying at elevated prices and how gold competes with bonds and other income-producing assets.

How commodity prices can affect portfolios

Commodity price changes can affect stocks and bonds through inflation, interest rates, consumer spending and corporate profits. Energy producers may benefit from higher selling prices, while airlines, manufacturers, retailers and other heavy users of fuel or raw materials may face pressure on margins unless they can pass higher costs to customers. Bond markets may react if investors expect a commodity shock to keep inflation elevated and delay interest-rate cuts.

The market impact depends on the source and duration of the move. A short supply disruption can produce a rapid price spike that fades as shipping or production recovers, while years of underinvestment or sustained demand growth can support a longer cycle. Portfolio decisions should therefore consider the underlying supply-and-demand balance rather than assume every rise in commodity prices has the same inflation or investment implications.

How to invest in commodities thoughtfully

Commodities can complement a diversified portfolio, but they require careful timing and risk management. “Investors must make two successful decisions: buy at an attractive price and sell at a higher one,” says Haworth. “Direct commodities and futures, which are contracts to buy or sell later at a set price, generally produce no income while investors wait, so we tend to view them as tactical positions rather than long-term core holdings.”

Investors should expect commodity prices to move sharply as supply, demand, weather and geopolitics change. Precious metals can rise alongside inflation, but recent gains also reflect strong investment demand and concern about market risks. Companies that own pipelines, storage facilities and other infrastructure may offer another way to participate in commodity markets, with the potential for both price appreciation and income.

A commodity allocation should fit your goals, time horizon and tolerance for price swings. Consider how the position would interact with stocks, bonds and other investments you already own, and whether direct commodity exposure or an infrastructure-related investment better serves the intended portfolio role. Talk with your financial professional about the appropriateness of a commodities position in your portfolio.

FAQs

What are commodities?

Commodities represent a wide range of assets, including everything from energy and agricultural products to precious and industrial metals. Prices of different commodities can vary, though all tend to be affected by factors such as production levels (supply) and consumer and business demand. Economic factors also tend to come into play. For instance, during global economic recessions, energy demand tends to subside, often driving prices lower.

Do commodity prices increase with inflation?

Typically, changes in commodity prices can drive inflation trends. According to the U.S. Bureau of Labor Statistics, commodities make up 36% of the Consumer Price Index, the most watched inflation measure. When inflation began to surge in 2021 and 2022, higher commodity prices, such as for food and gasoline, played a big role. When inflation numbers improved after peaking in mid-2022, declining energy prices and slowing food costs also played an important role.

Should I invest in commodities?

Investors sometimes consider including commodities in a portfolio to hedge the impact of higher inflation. But it can be difficult to earn a durable return with direct investments in commodities or commodity futures. Investors must be aware that commodities tend to be a volatile asset class, and it is difficult to choose the right time to invest when prices can shift significantly in a short period of time. 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. Along with capital appreciation potential, these investments also tend to provide a regular income stream.