For decades, the CRB Index has tracked the price of a selection of “core” commodities. These are: Aluminium, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar, and Wheat. Like all price indexes, the index reflects the ups and downs in the price of this basket of commodities. Also like all price indexes, the weightings are important. The commodities in the CRB index are arranged in 4 groups, with different weightings: Energy: 39%, Agriculture: 41%, Precious Metals: 7%, Base/Industrial Metals: 13%. As such, the ups and downs in the index are most sensitive to changes in energy and agriculture prices predominantly. 

Over the past several years, with inflation an issue for the first time in a long time, a new generation of people have been introduced to the Consumer Price Index (CPI), which is the measure of inflation that is most widely used and reported on. The CPI is important because it’s the rate that the Reserve Bank says it wants to keep within the target range of 2-3%. If the CPI gets above 3%, the odds of an interest rate increase go up. If the CPI is in the range, or below it, there’s a greater chance that interest rates will be cut. During 2021 and 2022, the CPI was well above and outside the target range, prompting the RBA to raise interest rates. For this reason, it’s a good idea to learn more about what the CPI is, its strengths and weaknesses, and to keep an eye on what’s happening to it.

In this post, we take the opportunity to re-examine two things that have been subjects of this blog over the past few years. The first is ESG (environmental, social, governance) investing. The second is the RBA’s balance sheet, which we mentioned several times in relation to interest rates and inflation. There have been fairly big changes in both, and so it’s time to take another look.