Economy in Brief

Among the 11 early reporters of the PPI (or in the case of Austria, the wholesale price index), the median increase in September was a rise of 0.2%. This is a downshift from the 3.6% increase in August but an improvement from the 0.2% decline in July. Europe is clearly in a period where prices are somewhat volatile in the wake of some energy price and commodity price instability.

However, the overall median for 12-months, 6-month, and 3-month price changes for the PPI excluding construction among EMU members shows a deceleration in the pace from 35.6% over 12 months to 25.6% over six months to 20.8% over three months. This is some significant deceleration; however, the pace of inflation is still tremendously high.

The results in the table are for September 2022. They show an increase of 35.6%. One year ago, the year-on-year increase was 17.4%. The year before that, the 12-month period ended September 2020 had the year-over-year PPI median fall by 3.2 percentage points.

The PPI is most volatile of the 'major' inflation statistics because it's weighted toward commodities and oil, goods that have been bearing the brunt of the inflation process recently. In the table, Ireland shows some of the most outrageous increases for the PPI over three months, six months, and 12 months. Setting its wild numbers aside, Germany has the highest percent gain over three months at 84.6%. Over six months, again, Germany posts the largest gain at 53.5%. But over 12 months the largest annual gain is from Italy at 53.2%, followed by Belgium at 49.5%, and then Germany at 46.9%. On the same profile, the weakest increase over three months is from Austria at -8.9%; over six months there's a decline of 6.1% in Greece; over 12 months there's much more clustering but the weakest gain is from Austria at 20.6% followed by Portugal at 21.6% and Finland at 24.6%.

The PPI for 12-months ago - its 12-month increase for the period ended in September 2021 - shows a median gain of 17.4%. However, clustered around that median gain, the lowest increase in the table is France at 11.9%, stepping up to Germany at 13.4% and Portugal at 15.5%. At the top end, the biggest gainers are Ireland's 82%, a 25.6% increase in Belgium and a 23.9% increase in Spain.

Inflation shows some significant variability but clearly the pace has been high and one of the key reasons has been oil prices.

We have two early observations on a PPI excluding energy; one comes from Germany and the other is the number from the U.K. (which is no longer an EU member). The U.K. number is a core number excluding food, tobacco, beverages, and petrol. Both the German and the U.K. figures increase by 0.5% in September and by 0.4% in August. They diverge in July with a 0.4% increase in Germany and a 1.3% increase in the U.K. Sequential data show a tendency for the ex-energy or core inflation rates to abate but the progression is not absolute. In Germany and the ex-energy pace for inflation goes from 13.8% over 12 months up to a pace of 15% over six months then down sharply with a 3.8% pace over three months. In the U.K., the core rate goes from a 16.4% increase over 12 months up to 18.9% pace over six months and then down to a pace of 12.2% over three months. In both cases, the three-month pace is sharply lower than either the six-month or the 12-month pace.

The ex-energy or core inflation reported by Germany and the U.K. show an annual rate pace that hovers around the 15% area more or less and that is considerably better than the median, 35.6% annual rate, for all the countries in September.

Italian consumer confidence sank in October to 90.1 from 94.8 in September. The index has been engaged in a sinking trend since it peaked early in the recovery from the COVID crisis. The peak for the index was experienced in October 2021, the first month of data where observations became available for this survey after COVID struck and resulted in a one-month suspension of the survey in September 2021.

Consumer confidence is lowered by 8.3% over three months and by 23.9% over 12 months. The mean for confidence is at level 102 whereas the October value at 90.1 is substantially below this marker. The distribution of observations for confidence is such that the 90.1 level for the October index is at its 5.9 percentile ranking, which means confidence has been weaker than this less than 6% of the time on data back to 1997.

The evaluation of the overall situation (over the last 12 months) deteriorated sharply in October, falling to -138 from a -122 value in September. There's a sharp deterioration from August. The overall situation has fallen by 15 points over three months and 94 points over 12 months. The standing for the overall situation, a reading that applies to the last 12 months, is also in its lower 6 percentile.

The situation expected over the next 12 months improved in October. It rises to a reading of -13 from -19 in September and compares to a much weaker -22 level in July. The index is 44 points lower than it was 12-months ago but nine points higher than it was three months ago. The reading sits in the 29th percentile of its historic queue of data, telling us that it's been weaker less than 30% since May 1997.

Looking ahead to unemployment over the next 12 months, there's a slight deterioration to a reading of 20 and by that, I mean that the expectation for unemployment has risen; it's risen to +20 in October from +19 in September; it was at a level of 10 in July. Unemployment expectations are up by 10 points over three months and up by 26 points over 12 months. Unemployment expectations have been higher than this only 13% of the time since 1997. Concerns over unemployment clearly have risen and are now a palpable for the Italian worker.

The household budget for 12-months ahead show deterioration to +11 in October from +14 in September and it stands lower than it's been over the last four months; the budget assessment is down by 5 points over three months and down by 15 points over 12 months. Its standing is at its 52.5 percentile, which leaves it slightly above its historic median (it is also above its mean). This is one of the few readings the table that is not extreme.

The household financial situation over the last 12 months has a -55 reading in October, down sharply from -41 in September, and clearly the weakest reading in the last four months and below its historic mean which sits at a -36 level. The household financial situation over the previous 12 months has been evaluated as weaker than this only 11% of the time. However, it's the financial situation looking over the next 12 months that is most worrisome. It has fallen to a level of -41 in October compared to -36 in September and has the weakest reading over the last four months; it's fallen by 5 points over three months and fallen by 42 points over 12 months. The October reading now sits at the lowest level that it has experienced since May 1997. Concerns by Italians over their household financial situation have never been more extreme.

The environment for household savings improved for the current period. However, the reading for the future deteriorated. The assessment of the current period is 7 points higher over 12 months while the future expectation is weaker by 5 points over 12 months. The current assessment has a 92.8 percentile standing, which is extremely high, although future assessment has a 66.9 percentile standing, that is a top two-thirds standing which is moderately firm.

The assessment of the time being right to make a major purchase currently fell to -52 in October from -42 on September. This response is 13 points lower over three months and 41 points lower over 12 months. It has a 6.6% standing on data since May 1997. Consumers are obviously concerned about making major purchases and about unemployment, and these are major reasons while consumer confidence overall is so weak.

The business confidence index also deteriorated in October, falling to 100.4 from September’s 101.2. The current reading for October is the lowest over the last four months and it's fallen by 5.3% over three months and by 12.5% over 12 months. The business index has a 32-percentile standing, placing it the lower one-third of its historic queue of values.