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Silence of Commodities

During the last five months, commodities except a few have seen a stable decline or stagnation. This overall trend has resulted in the Producer and Consumer price index falling from highs. But it is important to know the trend and risks from hereon as it would influence the inflation trend ahead.

In the food category except for coffee and cocoa, most of the prices have been down by 5-10% in the last five months. Given that May is an important month as the global agriculture output estimates factor in new crops it would be important to see how the prices react to those numbers. It would be more important this year as El Niño and export restrictions are highest.

In the metal category except gold, most of the prices are down or stable around 2% to -10% in the last five months. The most important factor here would be how China's economy performs after all the measures taken by the government and central banks in recent months. If it moves of out deflation and increases the economic output in the June quarter then prices could reverse quickly.

In the energy category, both natural gas and crude oil are down. Given that demand is stable and supply continues to be cut voluntarily the reprices have made a floor. However, given the geopolitical risks and some level of upside risk from China. The September quarter will be important.

All these categories are at a crucial juncture that would influence inflation trends from hereon but if there are upside risks for long that would make central banks less sure of a fixed path for rate cuts when it starts.


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