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Economy in Brief

German PPI Pressure Still Lingers
by Robert Brusca October 20, 2008

Consumer goods inflation has broken lower in Germany. But for capital goods and intermediate goods, inflation forces are lingering. Headline PPI inflation has spurted by 7.8% over three months, a far cry from the 2% limit on consumer prices. The 0.4% headline PPI rise in prices in September offsets most of the 0.5% decline in August. For ex-energy prices the rise in September was a thin 0.1%. Over three months, however, the inflation rate is a still troubling 4.3% and the sequential growth rates show a ramping up of ex-energy inflation for 12 months to 6 months to 3 months.

Still, Jurgen Stark, a former Bundesbank member and currently an executive of the ECB says that, "We are seeing that due to the weakening in growth and the probability of very flat growth in 2009, the inflation rate will also probably fall somewhat more strongly than we had earlier expected."

Policy makers are looking at inflation and its trends very differently these days. They are setting performance and trends aside because oil prices have dropped so suddenly and economic growth has dimmed so quickly. Apparently, few policymakers give much credence to the notion that the OPEC meeting this week could re-boost oil prices in a way to light a new fire under inflation. Central banks have gotten, instead, to the point of being so worried about (or sure of) coming economic weakness and its impact on prices that they are losing their fear of inflation near term. This is very significant especially for a central bank like the ECB that only has an inflation mandate – no growth mandate.

Germany PPI
  %m/m %-SAAR
Sep-08 Aug-08 Jul-08 3-mo 6-mo 12-mo 12-moY-Ago IN Q3
MFG 0.4% -0.5% 2.0% 7.8% 10.1% 8.3% 1.5% 11.7%
Ex Energy 0.1% 0.2% 0.8% 4.3% 3.9% 3.5% 2.5% 5.3%
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