Euro Area PPI Inflation Still Falls Year-on-Year

In May the PPI excluding construction was dead flat. Year-over-year, the ex-construction PPI is down by 2%. But the ex-construction index has not so clearly made the turn to a rising inflation trend despite a net rise over three months.

Among the 10 EMU members in the table reporting ex-construction PPI data, six show declines in May. Six show declines in April. Four show declines over three months. And all of them show declines over six months and 12 months. However, there is no steady turn for inflation as most of these reporting EMU countries have deeper declines in their respective PPIs over six months than over 12 months. Still, all show inflation picking up over three months compared to six months.

So this is an incipient rise in inflation and it is still too soon to tell how much power and longevity it will have. Europe, after all, is still weak. Prices are lower on balance over the past year everywhere and for the year before that they are lower in seven of 10 countries. Europe has been a long time under the yoke of falling prices. Still, activity is not picking up very strongly either in Europe or in the global economy.

The EMU region does show some lasting pressure on capital goods prices, but it is not picking up. Downward pressure on consumer prices is slowly abating. But the pattern for intermediate goods prices is still not clear.

Of course, everyone is aware that the situation in Greece could create more chaos in Europe. It is not predestined, but it is possible. Even a Grexit could be controlled or could bring about spreading pressures. Right now there is risk as well as uncertainty. And if financial distress hits Europe, we can expect an impact on growth and inflation developments as well. Europe's inflation situation is not baked in cake; it is still to be determined.