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Economy in Brief

German PPI Rises And Sets Sites On A New Horizon
by Robert Brusca September 17, 2009

August following and outsized drop of 1.6% in July. Even so the drop in German PPI prices is becoming progressively smaller. Over three-months the pace of decline for PPI-ex-construction prices is 4.4% compared to a larger 6.9% pace of decline Yr./Yr. Ex energy PI prices are starting to creep up. Over thee-months the ex-energy price trend is flat; over six months it’s a rate of decline of 1.9% and over 12-months the pace of decline is 3.3%. PPI prices ex-energy are stabilizing and paving the way to rise on a more consistent basis.

Sectors and quarterly trend: Still in the quarter, PPI prices are still falling with two of three-months’ data in hand. Yr/Yr trends for sector prices are still falling although for intermediate goods there has started to be some cutting of the pace of the decline in the year-over-year price trend.

German prospects: The strong euro will help to keep a lid on German PPI prices. And much of the rise in oil prices is already under our belt in Germany although there may be some subtle transmission effects that are still at work. The recent back off in the IFO index suggests that the German recovery will not be the sort of blockbuster that introduces demand-pull inflation to the recovery process. But just as clearly the period of falling prices is coming to an end. There will groups that experienced set-backs in the recession and will be looking to make up for those with gains as the economy gets healthier. In Germany especially there is a concern among policymakers about how this transition plays out.

Perspective: A new dawn of a tentative dawn - The ECB remains wary in this circumstance. But the Bundesbank and ECB have not been as over-the-top with stimulus as was the US Federal Reserve. There is not as much to pull back or to offset. Even now credit growth in Europe remains weak and stilted. The UK is on the same page with this result. Without rapid credit growth, it seems unlikely that any sort of overheating would have legs. But as we transition away from the ‘era of falling prices’ expect the central bankers to begin to sound a new note even as they are wary not to overdo any tightening of policy too soon or to do it too rapidly once they start.

Germany PPI
  %m/m %-SAAR  
  Aug-09 Jul-09 Jun-09 3-mo 6-mo 12-mo 12-moY-Ago IN Q3
PPIxConst 0.7% -1.6% -0.2% -4.4% -6.8% -6.9% 0.3% -6.4%
Ex Energy 0.3% -0.2% -0.1% 0.0% -1.9% -3.3% 3.2% -1.4%
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