Inflation and Commodities

It was nerve-racking....

Commodity prices screamed higher and higher in the wake of the COVID pandemic. Lumber (see chart below) rose from the $400s to over $1,700 in the course of a year.

However, the best cure for high prices is high prices. The "invisible hand" allocates resources in a way that brings prices back to earth. In this case, supply chains were fixed and COVID-relief spending washed through the economy. And now, 2 years later, we have lumber back in the $300s.

Historically, inflation tends to spike during and just after times of major war. Similarly, during and just after the pandemic, supply stopped moving as freely between nations and emergency government spending was unleashed.

While commodity prices are extremely hard to predict (which prices aren't?), it can help to have some exposure in your portfolio for a hedge, depending on your goals and risk tolerance.