The minutes of the August 9 FOMC meeting suggested that most policymakers were revising down their growth forecasts for 2011 and 2012, and in turn some were downgrading their inflation assessment, as well. Similar to the tone of the actual FOMC statement, participants acknowledged that economic growth was "considerably slower than they had expected" and transitory headwinds "could account for only some of the [recent] weakness". Clearly, policymakers were eyeing downside risks to the outlook. We are somewhat surprised by the dovish outlook for inflation, as the minutes noted: "[A]s prices of energy and some commodities have declined from their earlier peaks, headline inflation has moderated." This is a questionable assumption given that headline CPI accelerated to 3.6% year?on?year in July from an average of 3.3% in Q2 and 2.2% in Q1. Similarly, the PPI stages of production also show mounting pressures: crude?stage (22.2% vs. 25.5%), intermediate?stage (11.8%-cyclical high) and finished?stage (7.2%-cyclical high). We were surprised to see the minutes note the following: "Participants generally noted that […] inflation was likely to decline somewhat over time.

Eoin Treacy's view In the world of central bankers when prices stop rising, but do not fall, they conclude inflationary pressures are moderating. For ordinary people who have to pay their own bills, without a corresponding increase in wages, this equates to an additional tax on consumption. West Texas Intermediate Crude oil prices have been trending lower since May. They recently found support in the region of $80 and have now returned to test the $90 area which represents the first are of potential resistance. Grain and bean prices have on aggregate been relatively static for most of the year and industrial metal prices have fallen sharply over the last few months. However what about the medium-term outlook for these commodities?

WTI crude oil will need to sustain a move back above $100 to break the three-month progression of lower rally highs and signal a return to medium-term demand dominance. Brent crude prices also hit a medium-term peak in May but the progression of lower highs has been more sedate, with the reaction to date mostly limited to a ranging reversion towards the 200-day MA. Prices bounced from the $100 in early August and will need to sustain a move above $120 to signal a return to medium-term demand dominance.

Corn prices trended consistently higher from mid 2010 to mid 2011 before encountering resistance near the 2008 peak at 800¢. They pulled back sharply in June but have since regained the peaks and a sustained move below 700¢ would be required to suggest anything other than temporary resistance in the current area. Soybeans have been ranging with a mild downward bias since February but found support in the region of 200-day MA from July, broke the seven-month progression of lower rally highs last week and hit a new high for the year yesterday. A sustained move below 1400¢ would be required to question medium-term scope for additional upside. Rough rice has been something of a wallflower among the staple foods but completed a two-year base in July. It consolidated above $15 and broke upwards again today. A sustained move below $16.50 would be required to begin to question medium-term scope for additional upside.

LME Copper prices have been ranging mostly above the 2006-2008 top formation since early this year. It found support at the lower side of its 9-month range again three weeks ago and a sustained move below $8500 would be required to confirm a return to medium-term supply dominance. Lead and zinc are both rallying from the lower side of year long ranges. Nickel has found at least short-term support in the region of the psychological $20000 but the six-month progression of lower rally highs remains intact. Aluminium and tin and also remain in relatively consistent six-month downtrends.

Industrial metals on aggregate share the technical deterioration experienced by Industrial shares that was evident in a review of the S&P100 posted in Comment of the Day on Friday. Brent crude prices remain steady above the $100 level. A sustained break above $120 would significantly boost the case for a return to medium-term demand dominance. Grain and bean prices have moved to positions of relative strength. We have been pointing out for a number of months that it is in this sector where truly bullish fundamentals are present. (Also see David's Comment on May 20th). While wage growth is unlikely to be a pressure in the US economy, the above characteristics, if they are sustained, are not consistent with an environment where inflationary pressures moderate.