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Economy in Brief

EMU PPI Flares Rising by 5.2% in October
by Robert Brusca  December 2, 2021

The graph shows that year-on-year trends for inflation are rising across categories. Headline inflation (PPI excluding construction) is roaring, accelerating and rising by 21.9% over 12 months.

The sector categories for manufacturing show less pressure but still too much. Only the capital goods sector is showing still-accelerating prices from 12-months to six-months to three-months. But all categories show excessively high rates of inflation over every horizon (more than 2%). And while inflation by sector generally declines over three months compared to six months, the comparison of the three-month inflation pace to the pace over 12 months does not show much step back for those two sectors where it does step back. The same is true for all of manufacturing

Of the 14 countries listed in the table, ten show accelerating inflation over three months. The exceptions are Ireland, Finland, Sweden, and Luxembourg.

Over six months, inflation accelerates in all countries. It accelerates the most in Ireland (Ireland's inflation then unwinds substantially over three months). Over six months compared to 12 months, inflation accelerates by double digits in Belgium, Denmark, and Italy- in addition to Ireland, of course.

Inflation broadly accelerates over three months compared to 12 months in 11 countries with Finland, Sweden, and Luxembourg as exceptions. Three-month inflation is more than 12-month inflation in 11 countries and in ten of them the pace exceeds the 12-month pace by double digits; the exception is France where the three-month pace exceeds the 12-month pace by 'only' 9.3%. Compared to one year ago, inflation is higher every where and by double digits. In fact, only five countries fail to show accelerations of 20 percentage points or more.

Clearly, PPI inflation has been a driving force for inflation. Intermediate goods inflation has driven the pace for the most part. PPI industrial inflation (excluding construction) has been worse than in manufacturing. In this data set, there are precious few signs that the forces of inflation are slowing.

Table 1

The chart at the top shows that prices are flaring by sector with intermediate goods year-on-year price gain dwarfing what are still large increases in other sectors. Table 2 shows the median increase across countries as well as diffusion (the breadth of those gains) across countries

For intermediate goods there are ongoing double-digit gains but with a sharp drop in diffusion over three months. That suggests that oil and commodity price increases while still strong have stopped accelerating. That is the most significant take-away from this table.

Capital goods inflation diffusion has come down from the 90.9% level over 12 months and six months to register 54.5% diffusion over three months. That now designates a mild case of inflation acceleration. However, the price increases are still high in the sector at 6.5% over three months. That is an acceleration from six-months when the median gain was 6.1% and that outdistances the 3.9% median gain over 12 months.

Consumer goods show diffusion falling from 100% over 12 months to 81.8% over six month and to below 50% (at 45.5%) over three months, signaling that PPI inflation for consumer goods is decelerating in more countries than it is accelerating over three months. Meanwhile, the median consumer rate of inflation falls to 3% over three months from 3.3% over six months and is barely up from its 3.1% pace over 12 months. These unweighted country trends for the median inflation rate show more signs of inflation abating than in Table 1.

Monthly data show higher diffusion and at least steady month-to-month median inflation. The break in the diffusion rates we see in the table over three months are mostly due to reduced diffusion in September and in August as diffusion statistic popped back up in October. Still, there is an indication here of some pricing softness emerging.

Table 2

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