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Economy in Brief

Zone Inflation Sort of Stops Rising
by Robert Brusca  June 16, 2011

While headline Zone inflation hits 0% in May and the core edged up by just 0.1% the trends continue to point higher. What is really going on with inflation will play out over the coming months. Since commodity prices have broken their up trends to some extent and, since there is a slowing in place, there is some optimism that this statistically unreliable indication that inflation really is slowing may actually be the real thing. But it is really too soon to tell.

EMU's 3-month inflation is lower than the annualized six-month rate by a few ticks of the compounded annualized growth rate. That and $2.50 can get you a cup of coffee at Starbucks.

As we look to the country detail we find that the three-month rates of inflation are on the rise In France, Italy, and in Spain. In Germany the pace of headline inflation is lower over three-months compared to six months. But all large EMU nations show inflation is up for six-months compared to twelve-months.

Core inflation which is not a focus of the ECB but is still a very important statistic because it tells more of the definitive turn in the inflation trend, shows that inflation is still accelerating from 12-months to six-months to three-months across these countries with the exception of the UK where inflation has cooled from six-months to three-months. Still, the UK six month inflation rate is huge at 4.1% and at 2.8% its three-month inflation rate is still not at a very satisfying level.

On balance the supporting inflation numbers are still not there in on a broad-based level across countries. The best of the EMU trends is seen is in the headline rate which is the ECB's policy focus. Still that rate is at 2.7% Yr/Yr which is too high, over the 2% ceiling and the 3-month pace, while lower than the 3.2% over six months, at 3% is still excessive. There are some hopeful trends here but there is nothing definitive. As we know the ECB does not make its monetary policy on hope. Despite ongoing debt issues in the Zone the recent drop in UK retail sales in May and other signs of slowing, the Zone remains on tenuous ground as far as ECB policy is concerned.

Trends in HICP
  %Mo/Mo %SAAR
  May-11 Apr-11 Mar-11 3Mo 6Mo 12Mo Yr Ago
EMU 0.0% 0.3% 0.5% 3.0% 3.2% 2.7% 1.7%
  Core 0.1% 0.2% 0.6% 4.0% 2.2% 1.7% 0.9%
Germany -0.2% 0.3% 0.5% 2.6% 3.0% 2.4% 1.2%
France 0.0% 0.2% 0.5% 2.9% 2.7% 2.2% 1.9%
Italy 0.2% 0.3% 0.6% 4.3% 3.4% 2.9% 1.5%
UK 0.0% 0.8% 0.1% 3.4% 5.8% 4.5% 3.3%
Spain -0.1% -0.1% 1.9% 6.9% 4.9% 3.4% 2.5%
Germany -0.1% 0.5% 0.2% 2.3% 1.7% 1.4% 0.6%
France 0.1% 0.3% 0.2% 2.8% 1.7% 1.4% 0.8%
Italy -0.1% 0.5% 1.0% 5.9% 2.7% 2.2% 1.5%
UK -0.1% 0.8% 0.0% 2.8% 4.1% 3.5% 2.8%
Spain 0.1% -0.5% 2.0% 6.5% 2.9% 2.0% 0.9%
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