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Economy in Brief

HICP is Losing Momentum
by Robert Brusca August 16, 2007

Inflation trends are peaking and falling in the Euro area with the key core measure. Still that core measure is hugging the 2% ceiling rate for the overall HICP. While Year/year inflation is lower and 3-month inflation is lower 6-month inflation is NOT.

Overall and core rate of inflation are mostly conforming to the ECB ceiling across major countries. There is no sense of accelerating inflation in this group and that is certainly good news. The bad news is that the trends for the components of inflation are more decidedly mixed. While goods price inflation is still falling (and that one contains oil and gas price effects), services inflation is high and accelerating. It may contain some energy price impacts as well, but the speed right now is over the top of acceptability. Internal inflation (services) can be more stubborn than goods inflation. These days, due to international competition, goods price inflation tends to be better behaved. Pressure from services prices tends to be longer lived while goods price oscillations may not be so permanent. As a result the drop in goods prices that helped to contain the overall HICP is to be closely watched in the coming months. We obviously want to see as well the service sector trends and how much they are able to deflate.

Trends in HICP
  M/M % Change % SAAR
  Jul-07 Jun-07 May-07 3-Mo 6-Mo 12-Mo Yr Ago
EMU-13 0.1% 0.2% 0.2% 2.0% 2.6% 1.8% 2.4%
Core 0.1% 0.1% 0.1% 1.3% 2.0% 1.9% 1.6%
Goods -1.0% 0.0% 0.2% -2.9% 2.6% 1.2% 2.7%
Services 0.8% 0.2% 0.2% 5.2% 4.5% 2.6% 2.1%
               
HICP              
Germany 0.2% 0.2% 0.2% 2.3% 2.5% 2.0% 2.1%
France 0.0% 0.2% 0.2% 2.0% 2.1% 1.2% 2.2%
Italy -0.1% 0.3% 0.3% 1.9% 2.7% 1.7% 2.3%
UK -0.3% 0.3% 0.1% 0.4% 1.5% 1.9% 2.4%
Spain 0.2% 0.3% 0.3% 3.1% 3.4% 2.3% 4.0%
Core:xFE&A              
Germany 0.2% 0.1% 0.3% 2.4% 2.4% 2.1% 1.0%
France 0.0% 0.1% 0.1% 1.1% 1.3% 1.4% 1.5%
Italy 0.0% 0.1% 0.2% 1.2% 3.0% 1.8% 1.7%
UK -0.1% 0.1% 0.3% 1.2% 1.6% 1.8% 1.2%
Spain 0.2% 0.2% 0.1% 2.2% 2.3% 2.4% 3.2%
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