Economy in Brief

Consumer confidence in Finland fell to -13.3 in December from -12.4 in November. The confidence metric stands in the 2.9 percentile of its historic queue of values. It also stands at its 12-month low, its lowest mark of the year. One year ago, the consumer confidence measure stood at its lowest point on data back to January 2001. While the overall ranking for consumer confidence is improved in 2023 compared to a year-ago, the reading is still low, and momentum is poor.

The assessment of Finland's ‘economy now’ improved slightly to -41.4 in December from -42.5 in November. That's above its 12-month low of -50.3. The progression of averages from 12-month to 6-month to 3-month, doesn't show much ongoing improvement in this metric.

Expectations for Finland's economy in 12 months also improved in December to -16.8 from -19.1 in November. However, the progression of averages from 12-month to 6-month to 3-month does not show improvement in train; it shows deterioration.

Consumer price inflation over the past year improved slightly in December to 4.1 from 4.2 and there has been steady improvement on the inflation front as the year has gone by.

Unemployment in Finland has been steady over the last three months although it deteriorated slightly in December at -31.7 compared to -31.3 in November. The moving averages also show that there has been a gradual deterioration from 12-month to 6-month to 3-month. The personal threat of unemployment ‘now’ shows a sharply weaker number at -14.2 in December compared to -11.5 in November, and the threat of personal employment has been declining as well from 12-month to 6-month to 3-month.

The economic environment shows the favorability of the time to purchase durables deteriorated slightly in December at -25.7 compared to -23.7 in November. The 12-month, to 6-month, to 3-month progression of averages shows a slight ongoing improvement on this metric.

The favorability of time for saving worsened slightly at -13.6 in December compared to -13.4 in November. There has been little movement in this metric, but it has gradually worsened.

The favorability of time for raising a loan balance deteriorated slightly month-to-month and the 12-month, to 6-month, to 3-month sequence shows slight change in this measure.

The household financial situation deteriorated in December, falling to a 16.4 rating from 21.9 in November. The 12-month, to 6-month, to 3-month averages of this metric have been worsening.

Household possibilities to save over the next 12 months were worse in December compared to November. This metric has been sliding from 12-month, to 6-month, to 3-month.

Ranking perspectives The queue percentile rankings show consumer confidence overall at a 2.9 percentile standing, which is quite weak although a slight improvement from what it was a year ago. The economy ‘now’ and the economy in 12 months, both have standings in their 15th to 20th percentiles, up from what they were a year ago, but still clearly quite weak. The assessment of consumer prices shows an improvement in inflation that is down to its 87.7 percentile from its 97.7 percentile one year ago. Unemployment in Finland shows a standing at its 17.8 percentile while the personal threat of unemployment is at its 14.3 percentile; both are sharply lower than what they were a year ago when the standings were in their 40th percentiles, respectively.

The environmental standings showed the favorability of a time to purchase durables has only a 4.7 percentile standing although that's better than it was a year ago. The favorability of time for saving has a 2.2 percentile standing, above what it was a year ago when it was on its all-time low on data back to 2001.

The favorability of the time for raising a loan balance fell to an all-time low in December 2023. Households rate the possibility to save over the next 12 months at a 0.7 percentile standing, extremely weak, and far below what it was one year ago.

Spain’s headline industrial PPI price index for all industries fell by 1.1% in November after falling by 0.8% in October. The PPI is showing ongoing deceleration similar to the performance of the PPIs from most developed economies.

Spain's headline PPI falls by 7.3% year-over-year, rises at a 1.2% annual rate over six months, and then falls at a 3.7% pace over three months. Consumer goods prices rise by 7.3% over 12 months, slow to a 6.1% pace over six months, and then accelerate gaining at a 14.6%, annual rate over three months. Intermediate goods prices fall by 5.4% year-over-year, fall at a 1.3% annual rate over six months, and then rise at a 2.1% annual rate over three months. Investment goods prices rise by 2.5% over 12 months, rise at a 1.4% annual rate over six months, and then accelerate to a 3.1% annual rate over three months. All the annualized three-month changes are stronger than their counterpart 12-month changes.

The headline change for total industry in Spain shows more weakness than in the components for manufacturing categories alone in the table detail. Consumer goods prices in the manufacturing sector are up strongly over three months compared to both their six-month and year-over-year gains. Intermediate goods demonstrate steady acceleration as their tendency to fall over 12 months and six months gives way to a rise over three months. Investment goods prices show steady expansion but no acceleration although the 3-month gain is the strongest gain over the usual sequence comparing 12-months, to 6-months, to 3-months.

On balance, Spain is experiencing sequential price pressures despite posting two months of declines and the headline industrial price index. The manufacturing sector seems to have more pressure than the more comprehensive industrial sector experiences.

And while the sequence of gains over 12 months, six months, and three months, seems quite tame for the overall industrial PPI in Spain, if we look at the trends for each of those horizons separately, the conclusion changes. Spain has a flattening trend for its industrial PPI with the declines in prices year-over-year having slowed down, begun to flatten out, and show lesser as well as diminishing declines. Over six months, the percent change profile shows clear acceleration after falling at close to a 20% pace for some periods; the six-month percent change now shows persistent small increases. The three-month percent change in May was falling at a rate in excess of a 20% pace; in recent months, the three-month percent change has been increasing although this month it dipped back into negative territory, showing a net decline over three months. Yet, it had risen over three months over each of the preceding three-month periods ended in August, September and October. The underlying trends for Spain’s producer prices are not as beneficial as the headline may suggest and this observation gives some weight to the notion that the rate of change of producer prices may be slowing or coming to an end.

The CPI in Japan in November fell by 0.1% with the closely watched CPI excluding fresh foods up by 0.1%. The all-item CPI rose by 2.8% year-over-year as the metric excluding fresh food was up by 2.5%. The CPI for all items excluding food and energy rose by 2.8% over 12-months. And that core measure of the CPI shows a steady deceleration in Japan's inflation rate from 2.8%, to 2.2% over 6-months to 2% over 3-months.

That progression, however, does not necessarily end of the debate on Japan's inflation rate. Japan’s concerns on the pace of inflation run deeper than just some three-month inflation progression. Inflation in the services sector in Japan continues to spread, a well-known problem for inflation since goods sector inflation tends to be more responsive in the short run and service sector inflation tends to be stickier. Goods sector inflation also tends to be lower because international competition in the goods market keeps prices in line; whereas services are wholly a domestic sector as there are few items in the services area that are subject to any kind of international competition.

A key issue in Japan has been where inflation would be settling. Before COVID struck Japan had been struggling with a long episode of weak prices and deflation stemming from various shocks and a shrinking, aging, population that fostered declining domestic demand. The Bank of Japan has been one of the few globally important central banks to express concern about its consistent missing of its target before COVID. The Bank of Japan was consistently undershooting its target and it was concerned about what that would do with its credibility. In contrast the Federal Reserve has been over its target for over 2 1/2 years following period of chronically undershooting in a more modest way. The Fed only talks about how it remains committed to its 2% target and never entertains for a minute the notion that its credibility might be undermined by its persistent missing of its target and its slow return to its target range.

After Covid the Bank of Japan wound up facing a different world where its inflation rate eventually rose. However, that didn't convince anybody because, in the US, the Federal Reserve called inflation ‘transitory’ when in fact it turned out to be still accelerating and sticky. The Bank of Japan didn't so much take a position on what inflation would do, as it became skeptical and wanted to watch the development of inflation closely to see what kind of monetary policy would be appropriate based upon how inflation was developing. Its long run of weak prices, concern about deflation, and the modest nature of the inflation it faced, all combined to give the BOJ policy flexibility.

The chart shows that Japan's core inflation rate never rose as much as inflation increased in the United States or in Europe. And while the inflation rate in Europe and in the US has come down, the inflation rate in Japan has only risen more modestly and transitioned into a plateau where inflation has been steady, based on the core rate. In the US, the core rate has slowed its transition to a lower pace while in Europe the core rate continues to drop at a relatively rapid pace.

As a result of these developments Japan finds its core inflation rate more or less in the same situation as other major money center central banks. Japan is no longer the outlier with deflation although the future remains unclear. Current developments in Japan's inflation trends seem to suggest an inflation in Japan is going to be a little bit stickier in the post Covid world than it was in the pre-Covid world. The Bank of Japan, which has had extraordinary policies in place and has engaged in a policy of yield curve control, is anticipating transition back to more normal ways of making monetary policy. The international financial community is focused on when this transition is going to occur. The more normal Japanese growth and inflation begin to look and the less distressed the situation appears, the more likely that the Bank of Japan will make this transition sooner rather than later.

And that's what it looks like is developing. It's beginning to look like the inflation picture in Japan is transitioning to something that is more normal globally and the Bank of Japan will soon be able to transition to a more normal monetary policy and drop its extraordinary policy of yield curve control. Along with this the BOJ will be able to transition monetary policy to a more normal level of rates and begin to hike rates to that end. To make this decision central banks are always focused on market expectations. And the case of Japan, something called the spring wage round will be key in determining what inflation expectations are like. The Bank of Japan will be able to see what bargaining between labor and management produces in terms of a wage rate. That will help to determine not just what inflation expectations are, but the pressures that will exist on inflation for the period ahead.