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Economy in Brief

EMU PPI Tails Off...Except for Capital Goods
by Robert Brusca  October 4, 2011

Inflation in Euro-Area PPI prices is starting to settle down- and just in time. With its Greek tragedy playing out (well, it isn’t a comedy is it?), the ECB could well use a few more degrees of freedom in its policy options. While the ECB may continue to be under heavy pressure for its role in the Greek bailout and European stability program it would be good if one of the criticisms were not that the ECB was doing all of this while inflation overshot its mark.

There is no confusion about inflation. The ECB inflation ceiling is expressed in terms of the headline HICP rate. But seeing some calmer results in the PPI could be beneficial and may simply be another sign that overall inflation pressures are abating. The PPI generally is more volatile than the HICP so if the PPI sinks below the HICP in terms of its rate of change that is a good- if tentative- sign that the pressures on the HICP are probably abating as well.

The PPI is slowing, intermediate price pressures have peaked and consumer prices are decelerating. Only capital goods prices still seem to have some acceleration left in them. And, capital goods prices are only up by 1.6% Yr/Yr and at a 2.6% annual rate over the recent three-months when they have ‘accelerated.’ The broader Yr/Yr trends echo these same results in EMU.

With world commodity prices slipping the inflation pulse seems to on its way to becoming unwound. At the Federal Reserve in the United States there is already some bracing for a possible risk of deflation on its way as commodity prices fall and as economic growth slows…again. In Europe those concerns do not seem to shift quite so quickly but it does look like the underlying economic paradigm has shifted.

Euro-Area and UK PPI Trends
  M/M SAAR
Euro-Area Aug-11 Jul-11 3Mo 6Mo Yr/Yr Y/Y Yr Ago
TotalxConstruct 0.0% 0.4% 0.2% 2.1% 5.9% 3.6%
Capital Gds 0.1% 0.2% 2.6% 1.7% 1.6% 0.7%
Consumer Gds 0.1% 0.0% 0.7% 2.9% 3.3% 0.5%
Intermediate -0.2% -0.1% -2.0% 0.7% 5.7% 4.7%
MFG -0.2% 0.4% -0.5% 0.5% 5.5% 3.3%
Germany
Gy ExEnergy -0.1% 0.2% 0.7% 1.3% 3.3% 2.5%
France:Tot
Fr ExF&Energy 0.2% -0.1% 0.7% 1.8% 3.4% 1.9%
Total MFG Prices
Italy -0.1% 0.4% 0.7% 0.3% 5.4% 3.6%
UK 0.3% 0.5% 3.9% 4.6% 6.1% 4.3%
Euro-Area Harmonized PPI ex construction
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