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Economy in Brief

EMU Prices Rise - Has The Worm Tuned?
by Robert Brusca November 30, 2009

EMU prices rose in October. Trends are still good but core inflation is showing a hint of acceleration as three month core prices are up at a 1.4% annual rate above their six-month and 12-month pace of increase.

Headline inflation shows a clear acceleration from an annual pace of -0.1% Yr/Yr to a +1.2% annual rate over six-months and to a 2.3% annualized pace over three- months.

Germany, France, Italy and Spain all show the same accelerating headline inflation pattern from 12-months to six-months to three-months. Italy’s 3-mo inflation rate is up to 3.4% annualized.

Core inflation has much less clear patterns across countries.

Core inflation is not accelerating from 12-months to six-months to three-months in any of these large EMU countries. It is accelerating from six-months to three-months in Germany and in Italy. But that similarity has little breadth. In Italy core inflation is running at a strong 4.1% pace. In Germany it is at 1.1% only the same as its Yr/Yr pace but up from its six-month pace. In France the core rate is still steadily decelerating. Spain’s core is back down after a pop-up over six-months.

On balance combined with news that UK consumers are repaying credit this holiday season and that German firms are having a tough time getting credit, it hardly seems that inflation is about to take root. The recent rise in energy prices is the reason for most headline inflation to be creeping higher. Core inflation is still largely under wraps. Still it is notable that inflation is starting to show some traces in the more inflation-prone country of Italy.

We don’t expect any policy change in EMU but the inflation worm may be starting its turn. Even so we expect it to be a big slow turn, even for a worm.

Trends in HICP
  % mo/mo % saar  
  Oct-09 Sep-09 Aug-09 3-Mo 6-Mo 12-Mo Yr Ago
EMU 0.2% -0.1% 0.5% 2.7% 1.2% -0.1% 3.2%
Core 0.1% 0.0% 0.2% 1.4% 1.0% 1.0% 2.4%
Goods 0.4% 0.5% 0.4% 5.5% -0.2% -1.4% 3.5%
Services 0.1% -0.7% 0.2% -1.7% 1.1% 1.8% 2.6%
HICP
Germany 0.2% -0.3% 0.7% 2.3% 0.7% -0.1% 2.5%
France 0.0% -0.1% 0.5% 1.3% 0.8% -0.2% 3.0%
Italy 0.0% 0.4% 0.5% 3.4% 1.1% 0.2% 3.6%
Spain 0.1% -0.3% 0.7% 2.1% 1.9% -0.6% 3.6%
Core:xFE&A
Germany 0.1% -0.2% 0.4% 1.1% 0.9% 1.1% 1.5%
France 0.0% -0.1% 0.3% 0.6% 0.9% 1.0% 2.3%
Italy 0.2% 0.4% 0.5% 4.1% 1.7% 1.4% 3.0%
Spain 0.0% -0.1% 0.1% 0.2% 0.7% 0.2% 2.9%
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