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Economy in Brief

Sentiment Slips but Flash Inflation Flares
by Robert Brusca October 31, 2007

Flash flare does not seem to be part of trend…Wake up call or wrong number?

The survey on flash inflation for the EMU region does not appear to be part of a trend. Indeed with the euro rising, the only real impulse to inflation right now is from commodity prices and since they are priced in dollars even that channel is muted.

The jump in the flash HICP seems to be just a flash in the pan but it’s a pan with explosives in it since the flash has made a huge impact. On a day when the EU Commission indexes show widespread losing in the Euro area and Draghi and Liikanen have made statements about the coming adverse impact on growth. On a totally different track, the BKK’s/ECB’s Weber has cautioned that the pressures on prices could force the ECB to act again to quell rising inflation pressures.

The table below shows the relative trends. There are only three new observations for October for the flash overall rate and the overall rates for German and Italian inflation. For the others, trends derive from prices in September. Through that point there is no solid evidence of inflation spiking or even gradually rising. But Italy and Germany do support the acceleration in the overall rate in October.

There is no core rate to look at to infer what the culprit was in creating price pressures. But there is little evidence of inflation building in the pipeline. In the Euro area 13 both goods and services prices have been pushed to lower rates of increase by the rising euro. For goods the strong euro is at work as the new three-month inflation rate through September is only 0.1% down from inflation in the area of 2% previously. Service sector inflation is at 2.1% for three months up from 2% over six months but down from 2.6% Yr/Yr. In short the 2.6% Euro area flash CPI may be a wake up call but it may also be a wrong number.

Trends in HICP
  % mo/mo % saar
  Oct-07 Sep-07 Aug-07 3-Mo 6-Mo 12-Mo Yr Ago
EU-13 #N/A 0.4% 0.0% 1.8% 2.5% 2.1% 1.7%
Core #N/A 0.2% 0.2% 2.1% 2.0% 2.0% 1.5%
Goods #N/A 1.0% 0.0% 0.1% 2.2% 1.9% 1.6%
Services #N/A -0.5% 0.2% 1.8% 2.5% 2.5% 2.0%
FLASH -  0.2% 0.2% 0.2% 2.1% 2.0% 2.6% 1.6%
Monthly Flash data are derived from Yr/Yr presentation
HICP
Germany 0.2% 0.7% -0.1% 3.1% 2.7% 2.7% 1.1%
France #N/A 0.1% 0.3% 1.8% 2.7% 1.6% 1.5%
Italy 0.7% 0.3% 0.2% 4.7% 3.3% 2.3% 1.9%
UK #N/A 0.1% 0.1% -0.4% 0.6% 1.7% 2.4%
Spain #N/A 0.4% 0.0% 2.3% 2.8% 2.7% 2.9%
Core Excl Food Energy & A
Germany #N/A 0.3% 0.1% 2.4% 2.6% 2.3% 0.8%
France #N/A 0.1% 0.3% 2.0% 2.0% 1.6% 1.2%
Italy #N/A 0.4% 0.2% 2.3% 1.8% 1.8% 2.0%
UK #N/A #N/A 0.2% #N/A #N/A #N/A 1.6%
Spain #N/A 0.2% 0.3% 3.0% 2.7% 2.6% 3.0%
Blue shaded area data trail by one month
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