The EMU PPI fell by 0.2% in September after dropping by 0.5% in August. WITH those two drops the three-month growth in the total ex-construction PPI is STILL +2.5% saar. The year/year PPI is at 7.9%. In between these the 6-month PPI has been blunted to 7.5% but its growth rate too is still horrific. Core PPI inflation is dropping and is ‘down’ to 3.2%. But this report is uniformly being interpreted as paving the way for an ECB rate cut. But of the four major EU nations we show the core PPI trends for in the table below, only Italy is below the ceiling for inflation that the ECB imposes on the HICP headline. And this ECB is a SINGLE MANDATE central bank. It has an inflation tolerance, period; it has no commitment to growth. But even with the inflation picture this bad, the ECB is widely believed to be on the brink of a second rate cut.

This shows us how far the ECB has come. Some European Finance ministers continue to marginalize the risk. In Germany there is a certain pretending in play that its banks and its economy are not hurt by as much. But Europe’s connection to central and Eastern Europe reinforce their sense of involvement with the stuff that is going wrong. In addition there is the leverage and all the fancy financial assets banks piled on their balance sheets. All of them did it.

In Europe the economic numbers are still diving. Today it is auto registrations that look so weak. The EU Commission has cuts its growth numbers to two marginally negative numbers over the next two quarters. Time will tell if that forecast is overly optimistic. The fact that the ECB is cutting rates with the inflation picture still as poor as it is, tells a much clearer story of what Europe really fears and how much.