Misinterpreting commodity price swings can be damaging – BIS paper

Responding to commodity price moves can be a challenge for central banks

Central banks risk policy mistakes if they fail to distinguish the driving forces behind movements in commodity prices, a working paper published by the Bank for International Settlements says.

Misdiagnosing the source of a shock as global supply can lead central banks to employ the “conventional wisdom” of looking through the initial impact and responding only to second-round effects such as wages and inflation expectations. This can be less than optimal if the source was actually global

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