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Economy in Brief

PPI Main Sector Trends Still Excessive But Lose Some Momentum
by Robert Brusca February 4, 2008

PPI Trends.

PPI trends are accelerating for the headline measure as well as for key country level headlines for inflation.
In the Euro area inflation continues to flare for energy and for MFG goods more generally. Capital goods inflation has remained subdued at a low of 1.5% Yr/Yr pace. Consumer goods inflation has backed off its highs but is still strong at 3.9% Yr/Yr. Intermediate goods inflation has worked its way lower as well. Inflation ex-energy has come back down to 2.1%, just a small step over the 2% rate that the ECB has set as its overall inflation ceiling for the Euro area-wide HICP. In that respect inflation is beginning to behave. Once energy prices stop boosting headline inflation there is every reason to believe that the overall rate will revert to the core.

By country…

For Germany, Italy and France, while headline inflation is clearly over the top, ex-energy inflation shows hopeful trends, for Germany and Italy, ex-energy inflation is at a 1.4% pace over three months and is below the 2% over the three- and six-month horizons. In France, the ex-energy inflation rate is at 2.2% above the 2% headline ceiling pace but in a mode of deceleration.
The UK shows that over the top inflation is still accelerating. At 3.6% ex-energy inflation is over the top as well and roughly stable at that pace making the BOE’s task difficult. 

Summing up

On balance there is reason for some optimism since the ex-energy measures are in better shape than the headline inflation rates, except for the UK. Ex-energy rates are decelerating as well and in the case of Germany and Italy they already are well below the 2% top-allowable pace for inflation generally. This progress may be enough to keep the ECB on hold and waiting for these core trends to take root. In time it should dominate the now higher headline rates of inflation across the Euro area nations as oil prices settle lower in the wake of the global slowing in growth.

Euro Area and UK PPI Trends
  M/M Saar
Ezone-13 Dec-07 Nov-07 3-Mo 6-Mo Yr/Yr Y/Y Yr Ago
Total excl Constructions 0.1% 0.9% 6.8% 4.9% 4.3% 4.1%
Excl Energy 0.1% 0.1% 2.1% 2.5% 3.1% 3.4%
Capital Goods 0.1% 0.0% 0.9% 1.0% 1.5% 1.8%
Consumer Goods 0.3% 0.3% 4.8% 5.3% 3.9% 1.5%
Intermediate & Capital Goods -0.1% 0.0% 0.7% 1.0% 2.7% 4.4%
Energy 0.1% 3.4% 23.2% 13.0% 8.3% 6.2%
Manufacturing 0.0% 0.8% 5.3% 4.3% 4.7% 2.9%
Germany -0.1% 0.8% 4.8% 2.7% 2.5% 4.4%
Germany excl Energy 0.0% -0.1% 1.4% 1.4% 2.2% 2.9%
France 0.2% 0.8% 6.8% 5.6% 4.5% 2.7%
France excl Energy 0.2% 0.1% 2.2% 3.1% 3.0% 2.8%
Italy -0.1% 1.1% 6.4% 5.4% 4.6% 5.2%
Italy excl Energy -0.1% 0.2% 1.4% 1.9% 3.0% 4.2%
UK 0.5% 2.9% 23.8% 15.2% 4.0% 0.4%
UK excl Energy 0.3% 0.2% 3.6% 3.4% 3.5% 3.1%
E-zone 13 Harmonized PPI excluding Construction
The EA 13 countries are Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia
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