Euro Area PPI Ticks Higher Month-to-Month

The euro area PPI rose in July, ticking up by 0.1% as it fell by 2.9% year-over-year. Capital goods prices rose by 0.1% in July as consumer goods and intermediate goods prices each rose by 0.2%. Year-on-year capital goods prices are higher, rising by 0.5% while consumer goods prices are lower by a skinny 0.1% and intermediate goods prices still are lower by 2.2%. All sectors show inflation, having begun to accelerate from 12-month to six-month and from six-month to three-month.

Country-level data, however, show more price weakness in July as 9 of the 11 countries in the table show June-to-July price drops. Germany and the U.K. are exceptions with prices increasing month-to-month. For the U.K., the PPI sped ahead by 0.3% on the month.

Still, if we look at sequential growth rates at the country level from 12-month to six-month and from six-month to three-month, we find that prices are accelerating on all those horizons for each county in the table. Inflation at the PPI level is accelerating on a broad front in the EMU and in the two EU members in the table. Dutch inflation is actually galloping ahead at a 13.2% annual rate over three-months.

The chart shows a clear bottoming tendency for prices in the main EU sectors. The downturn in prices has slowed and country by country there is a shift underway.

Whether this is the final turning point or not will depend a lot on oil. Oil prices continued to be fickle and their ability to `stick' at a higher level will also depend on growth. The global manufacturing PMIs released yesterday were not encouraging on that score, especially not the U.S. ISM manufacturing PMI which dipped below 50 yet again.

At the IMF, Christine Lagarde is talking about cutting forecasts again and she is urging countries to take forceful steps to escape the pull of weakness. Economic weakness can be like a black hole with its own gravitational force pulling an economy back into the abyss. Sometimes something is needed to more clearly signal that ways of weakness a being put behind and that growth lies ahead. Unfortunately, in this cycle there is little left to be done to create such a clear signal or illusion. There really is nothing left up my sleeve. Monetary moves have been made so often that what monetary policy has left to offer may chill the spine more than warm the heart. Such are negative interest rates. The game is still on.