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Economy in Brief

EMU Producer Prices Continue to Fall
by Robert Brusca  September 2, 2015

The PPI headline shows a monthly drop of 0.2% in July and a year-over-year decline of 2.1%. Two of the three PPI components are declining year-over-year. Those two are consumer goods and intermediate goods. Capital goods prices are up by 0.7% year-over-year.

However, capital goods prices are not accelerating as their three-month pace is slower than the pace of their year-over-year rise. Intermediate goods, however, have transitioned to increases over three-month and six-month, but without consistent acceleration evidence. Consumer goods prices, while falling on all horizons, are falling more slowly over three-month and six-month than over 12-month. On balance, there is a hint that the deflationary cycle may be easing, but it is only a hint. There are opposite hints elsewhere. A new wave of weak oil price and commodity price weakness definitely could bring back the downward pressures.

Moreover, countries continue to show PPI price declines. Ten of 11 countries show declines in PPI prices over 12 months (one is unchanged). Then, over six months, 10 of 11 countries show prices increasing! However, again, over three months we see a return to price declines as 9 countries show net declines over three months with two showing increases (Spain and Ireland).

Obviously, there is still great deal of price weakness in play. Global growth conditions are weak with China still touch and go. Equity markets have returned to their ways of volatility this week and wealth losses continue. Such pressures hint at continuing weak economic times and the ongoing postponement of price pressures.

The ECB, of course, targets consumer prices using the HICP measure. But producer prices also give an important signal. Japan is once again telling us it is not clear that it has thrown off deflation risk despite the BOJ explicitly targeting 2% inflation. In the U.S., inflation is stuck low. The price lethargy in Europe is its own of making, but there are still important international dimensions that continue to spread deflationary pressures.

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