French PPI Shows Year/Year Weakness

Headline and sector inflation rates for France are showing consistent declines. The core is also on a decelerating trend. Excluding construction the PPI is falling over rapidly. Anyway you cut the inflation signals at the PPI level France is showing weakness in prices.

Still, at the Summit in London, French and German leaders are focused on patching up the global regulatory system. The persisting downward pressure on prices suggests that weak growth is still public enemy number one. The ECB got on board today with a rate cut, but once again it was about half the magnitude of the cut that the market expected. Markets retreated after early day strong advances when they saw the meager cut. Markets regained some ground on the Trichet remark that there could be more cuts. Markets are playing attention to everything.

European nations are better protected from bad times compared to the US as evidenced by their higher continuing rates of unemployment and more generous social welfare programs.

But the recent backtracking in the Baltic Dry index and continuing sharp downward pressure on inflation of all sorts in France are harsh reminders that the recession is still with us and is still virulent. France was one of the few EMU countries in which the Markit Manufacturing PMI rose in March. Even so in the EU-Commission scheme of things France’s industrial sector slipped in March, consumer confidence stayed at a cycle low, the services sector was on a cycle low and overall sentiment continued to slip. Weakening price trend are just another way to underscore this sort of very broad weakness. It is hard to look at the current needs of the global economy and to square it with some of the policy work being done in international forums and by central banks. Being mindful of fiscal discipline is good and wary of setting of inflation too, but there is a time and place for those worries and this time and place seem inappropriate for them.

Still European stock markets are hopeful of some sort of turn in the economy and they are improving. That fits the policy tack of the European policymakers which is to not worry about growth because enough has been done. The ECB wants to turn attention to being mindful of launching irascible inflation trends by not overdoing it. The mixed signals of the times offer justification for just about anything. Only time will tell if an opportunity was missed or a hand overplayed.