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Economy in Brief

EMU ‘Core’ Inflation Trends Are Mixed…But Still Poor
by Robert Brusca November 15, 2007

The EMU region shows accelerations in overall inflation as well as in core inflation (see table below). The goods sector (a sector that includes energy) shows inflation is steadily accelerating and services show the opposite, steady price deceleration. From the stand point of inflation this offset is good news. From the stand point of growth it may not be…

The weakness in services prices is suggestive of a domestic population besieged by rising goods prices (…some of them of inelastic demand such as food and energy) robbing spending from the services component of expenditures where relatively more of the discretionary funds may be spent. We will want to watch to see if the EMU service sectors reflect a growing weakness that would confirm that such an effect is in train.

The bottom of the table includes core inflation readings across main EMU countries and all of them show that their inflation acceleration is in train or above the ECB ceiling rate of 2%... or both.

With this report a more detailed look behind the ‘seemingly benign’ core rate of inflation of 2.1% looks a lot grimmer. With the euro rising, and the ECB warning of spreading price pressures, it puts the EMU region and the ECB in a tough spot.

Trends in HICP
  % mo/mo % saar
  Oct-07 Sep-07 Aug-07 3-Mo 6-Mo 12-Mo Yr Ago
EMU-13 0.4% 0.4% 0.0% 3.4% 2.7% 2.6% 1.6%
Core 0.3% 0.2% 0.2% 3.0% 2.2% 2.1% 1.6%
Goods 0.8% 1.0% 0.0% 7.6% 2.2% 2.6% 1.3%
Services 0.0% -0.5% 0.2% -1.5% 1.8% 2.5% 2.1%
HICP
Germany 0.2% 0.7% -0.1% 3.1% 2.7% 2.7% 1.1%
France 0.2% 0.1% 0.3% 2.6% 2.3% 2.1% 1.2%
Italy 0.7% 0.3% 0.2% 4.7% 3.3% 2.3% 1.9%
Spain 0.7% 0.4% 0.0% 4.3% 3.7% 3.7% 2.6%
Core: xFE&A
Germany 0.2% 0.3% 0.1% 2.4% 2.4% 2.2% 0.9%
France 0.2% 0.1% 0.3% 2.7% 1.9% 1.7% 1.3%
Italy 0.5% 0.4% 0.2% 4.3% 2.7% 2.1% 2.0%
Spain 0.7% 0.2% 0.3% 4.8% 3.5% 3.1% 2.8%
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