The PPI headline in June fell by 0.2%, its first month-to-month decline since January. The headline rate shows a pattern of deceleration in its drop from12-month to six-month to three-month. But none of the components show clear decelerations. Among the 10 member countries whose PPIs we list in the table, six show a pattern of either decelerating declines or accelerating increases. Despite the proliferation of negative numbers for the PPI, the trend seems headed higher.

Italy, Spain and Ireland each have three-month changes that have turned positive. Italy shows the strongest turnaround in inflation with Ireland in second place.

While the ECB sets its inflation objective (of slightly less than 2%) in terms of the HICP rate, the chart at the top shows a clear relationship between the PPI and the CPI. They basically run the same cycles with the PPI changes coming a bit sooner and with higher peaks and lower troughs. The PPI is a good double check at least on the performance of the HICP. Right now the PPI is saying that the HICP is set to start heading higher.

Even so, the current HICP pace is extremely low and well off the ECB's price objective. The turn apparent in the pattern of the PPI is still rather mild and not a cause of concern- if anything perhaps it's something to cause a sense of relief. But as yet inflation remains low and price declines are rampant throughout euro area members. The sense of that changing is still incipient. And with world energy prices still in an unstable mode, we would judge this move to lesser price decreases or leading to a period of price increases as not simply incipient but as not yet firmly established as a trend. Ireland and Italy may be making strong strides toward inflation, but a great deal of price weakness lingers elsewhere.