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Economy in Brief

by Bob Brusca German Import Prices Surge, and Is All Oil…but That Misses the Point May 25, 2007

With German import prices surging and a new CPI soon to be released it is useful to look more closely at inflation trends in Europe’s biggest and now fast-growing economy. The table below summarizes trends for some key German inflation measures. The 0.8% rise in import prices in April is strong and has put in place a trend of acceleration for overall import prices. But that trend is not mimicked by non-oil import prices.

When we compare non-oil international and domestic trends we find that inflation is more of an issue for domestic prices than for international prices - that is not welcome news.

The German PPI excluding energy is hovering at the 3% mark and showing only a slight tendency to erode from that strong pace. The German CPI ex-energy has been very steadily accelerating from its low in January of 2006. In January of 2007 the rate notched up even more strongly and the pace has irregularly accelerated from there to reach the 2% mark – the ECB’s ceiling rate for the Euro area as a whole. Meanwhile, though both non-oil export and import prices have generally had inflation paths above those for domestic prices (except the PPI starting in late 2006), the trends for non-oil export and import prices have been deteriorating. Currently, export and import price inflation ex-oil is at or below the pace for domestic ex-oil inflation as measured by the CPI and PPI. Europe may be starting to have its own variety of home-grown inflation despite the rise in the Euro.

The euro’s strength may have helped to reduce the pace of expansion for export and import prices in Germany but even for ex-oil measures the pace, while down from the peak, is not very significantly below the pace of the CPI ex-energy. So while we can say the export and import prices apart from energy are no longer part of the problem, neither are they part of the solution since they are not expanding at a rate significantly slower than the ex-energy CPI and 2%.

If the ‘strong euro’ is to help with the inflation fight, either its effects must be lagged and yet to show through or the euro will have to rise further. A stronger euro could be the result if the ECB hikes rates further. And, it is widely believed to be planning another hike. The OECD foresees two more. Euro area labor organizations have pressed the ECB to do one and be done. Right now Germany’s inflation trends are not good. Moreover, Germany tends to be a low inflation country within the Euro area. Its 2% ex-energy pace is hardly a reason for ECB temperance.

German International and Domestic Inflation Trends
  % m/m % SAAR
SA Apr-07 Mar-07 Feb-07 3-Mo 6-Mo 12-Mo Yr-Ago
Export Petrol 0.2% 0.0% 0.1% 1.1% 1.5% 1.9% 2.4%
Import Petrol 0.8% -0.1% 0.4% 4.6% 0.8% 0.5% 6.7%
Export excl Petrol 0.3% 0.1% 0.1% 1.9% 1.7% 2.1% 2.0%
Import excl Petrol 0.3% 0.1% 0.0% 1.6% 0.4% 1.8% 3.8%
Memo: SA              
CPI 0.4% 0.3% 0.1% 3.3% 2.5% 1.9% 1.9%
CPI excl Energy 0.4% 0.1% 0.0% 1.8% 1.9% 2.0% 0.8%
PPI 0.1% 0.2% 0.2% 1.7% 1.0% 1.6% 6.1%
PPI Excl Energy 0.4% 0.1% 0.2% 2.6% 2.2% 2.9% 1.8%
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