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US inflation a downside risk to our price forecasts

Most commodity prices fell this week due to concerns about the persistence of high inflation in the US. Data showed US CPI inflation coming in slightly stronger than expected in January, pushing up interest rate expectations and giving a boost to the dollar. What’s more, data on US retail sales and industrial activity painted a picture of a robust economy. As a result, the upside risks to our Federal Funds Rate forecasts have grown which, in turn, raises downside risks to our commodity price forecasts later this year.

Next week, commodity prices will take direction from flash PMIs for advanced economies. If advanced economies generally appear to be holding up better than expected, then that could be a case of good news is bad news for commodity prices, as interest rate expectations might rise as a result.

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