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Economy in Brief

German PPI and EMU Trends for October
by Robert Brusca  November 18, 2011

The PPI’s across EMU have showing a broad trend toward deceleration, The German number is a fresh release, only Austria, Finland, and the UK have October numbers out. Germany also reports out a core PPI that is decelerating; the UK core rate is a bit more stubborn despite the weaker growth there.

The good news is that the preponderance of evidence is that the inflation impulse in EMU is dissipating. The most benign trends are from those with the most updated inflation observations through October. Those with figures updated only through September still show inflation stubborn in terms of the three-month inflation pace, which remains elevated. While growth in the region remains slow, the ECB has been given a daunting task to re-stabilize the union in the midst of horrific pressures on member economies mostly playing out through the bond markets.

CPI inflation (HICP) continues to be the most important inflation measure in the Zone. But since inflation has been in this case transmitted mostly through commodity prices the role of the PPI in the inflation process is a bit more central than might usually be the case.

A look at sector trends in EMU (chart) shows us that raw material inflation has made a good clear sharp turn lower. Consumer goods inflation trends appear to be peaking. Capital goods inflation has lagged but it appears to have slowed.

The last thing the ECB needs at this point is be concerned about a near term inflation bubble. The attention at the ECB now is over its role in the bailout and its long term role in EMU; will it will have lender of last resort powers or not. The Germans are in sharp opposition. France is in favor, wanting to tap the ECB or EFSF for funds in a much bigger way.

It seems to be that this is the line in the sand for EMU. The Germans want to stop the special financing and make countries in trouble confront their financial nightmare. France wants to soften the blow and drag out the process. With that countries might try to avoid adjustment and drag the ECB deeper in exposure to the troubled borrowers. Or they might use the extra well to adjust. The Germans seems to have reached a point of saturation saying in effect that they will not throw any more good money after bad. The situation among the troubled borrowers is severe. Their pain might be relieved by financing but that will wear off. They would then need more…and more. To avoid their endless pain, they need to make the structural reforms which some think, and maybe the Germans are in this camp, are just hurdles that are just too high for these countries to go over. If that is true the Germany’s reluctance is well-placed. If financing would help them to deal with their problems in time then Germany is wrong.

Which is it?

EMU PPI Inflation: Early And Later Reporters
  Mo/Mo% SAAR 12Mo Ended
  Oct-11 Sep-11 Aug-11 3Mo 6Mo 12Mo Oct-10 Oct-09
Austria (WPI) 0.3% 0.7% -1.6% -2.2% -1.6% 6.0% 7.0% -5.9%
Finland 0.2% 0.0% 0.2% 1.9% 0.3% 5.9% 8.2% -7.5%
Germany 0.2% 0.4% -0.2% 1.8% 1.9% 5.3% 4.1% -7.5%
Luxembourg #N/A 2.1% 0.0% #N/A #N/A #N/A 1.0% -14.6%
Portugal #N/A 0.5% -0.1% 3.0% 0.1% 5.5% 4.6% -4.2%
Ireland #N/A 0.1% 0.0% 0.1% -0.5% 4.2% 1.7% -4.8%
UK: EU Member -0.3% 1.9% -0.6% 3.9% -0.3% 11.7% 25.0% -2.1%
    Lagged One Month Oct-10 Oct-09
  Oct-11 Sep-11 Aug-11 3Mo 6Mo 12Mo 12Mo 12Mo
Belgium #N/A 0.4% -0.5% -2.1% -0.8% 6.9% 7.3% -8.4%
France #N/A 0.5% 0.0% 3.8% 2.0% 6.1% 4.2% -6.6%
Greece #N/A 1.7% -1.2% 9.6% 0.3% 8.2% 4.5% -3.7%
Italy #N/A 0.4% -0.1% 2.7% 0.2% 4.7% 4.0% -5.9%
The Netherlands #N/A 0.5% -0.4% -1.2% -1.0% 7.5% 6.4% -11.1%
Spain #N/A 0.6% -0.4% 3.7% 1.0% 7.1% 4.1% -4.2%
EMU Total #N/A 0.8% 0.1% 4.6% 2.2% 6.9% 4.6% -5.5%
Early Reporters Ex-Energy Trends
Germany -0.3% 0.1% -0.1% 0.7% 1.5% 3.1% 3.1% -3.2%
UK (X: F,T,B&Petrol) 0.2% 0.3% 0.2% 4.2% 3.4% 6.4% 4.0% 1.6%
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