Economy in Brief

Swiss inflation rose by 0.9% in January after being dead flat in December. The rise in the HICP for Switzerland is the largest month-to-month rise in this cycle and the largest increase for quite some time, spurred by food, housing and energy prices. The same is true of the Swiss domestic CPI measure which rose by 0.7% in January after a 0.1% increase in December. Both the HICP and the Swiss CPI measures are rising at a 4% annualized rate over three months. Below I will focus on the CPI rate because its details are presented in the rest of the table.

The Swiss CPI is up by 3.3% over 12 months; it's up at a 2.5% annual rate over six months, showing some deceleration, and then, it accelerates sharply to 4% over three months. The core inflation rate, which rose by 0.4% in January after rising by 0.2% in both November and December, is up by 2.2% over 12 months; it's up at a 2% annual rate over six months and then it accelerates to a 3% annual rate over three months.

Switzerland presents a category of prices that is unusual among CPI reporters; it's a category of price changes excluding administered prices. That category shows prices rise by 0.5% in December after rising by 0.2% in December and 0.3% in November. The progression of prices in this category shows a 2.9% rise over 12 months, a slight deceleration to a 2.7% pace over six months and then acceleration to 4% over three months. Excluding administered prices doesn't have much impact on the rate acceleration, but it does reduce the level of year-over-year inflation compared to the headline but not compared to the core.

Among the eight categories in the table for Swiss consumer prices, there is consistent acceleration reported only for housing and energy where the prices are not seasonally adjusted. But in that category, prices rise by 5.1% over 12 months, at a 5.4% annual rate over six months and at a 7.3% annual rate over three months. Prices show deceleration on a consistent basis for health care with the inflation rate of minus 0.4%, deteriorating to minus 0.5% over both six months and three months when annualized.

Swiss inflation has accelerated recently and has a rate above 3% over 12 months and above 4% over three months, but when we measure the inflation performance on a compounded basis since January 2020 before COVID struck, the HICP inflation rate has only been rising at a 1.4% pace and the CPI has risen only at a 1.5% pace. In fact, most categories are quite well behaved with housing and energy showing a 2.7% inflation rate over that span. Transportation, another not-seasonally-adjusted category, shows inflation running at a 3.1% pace over the period. Apart from those, all the categories are showing inflation rates below 2% with health showing prices falling on balance, logging a -0.4% annual rate from January 2020.

At the bottom of the table, we reference the inflation rate for the European Monetary Union on its HICP measure. This measure is lagged because the data for January are not yet available. What we see is the substantial difference between inflation in Switzerland and in the European Monetary Union despite the union’s 2% goal. We see that over 12 months the EMU inflation rate has been at 9.2% instead of the 3.2% the Swiss posted. Over six months, EMU inflation is lower at a 7.1% pace, compared to a much lower 2.8% pace in Switzerland. Over the recent three months, the EMU pace is at 4.6% pace compared to 4.4% in Switzerland, a much closer comparison. These numbers are slightly out-of-sync because we are looking at the up-to-date European Monetary Union data which are lagged by a month against the Swiss data which are up to date through January. But they shouldn't be that dramatically different. What we do see is that EMU inflation over 12 months and six months has been quite substantially stronger than inflation has been in Switzerland. Even though Switzerland has been in a relatively high inflation environment, it has managed to keep its domestic inflation rate much more in check. And while it faces a minor inflation problem currently, there's no sense that it's particularly become entrenched. There is high inflation in two categories: (1) housing & energy inflation runs at a 7.3% annual rate over three months and (2) food & beverage inflation runs at a 6.1% inflation rate and that has been consistently elevated. It is increasing at a 5.6% pace over 12 months and a 6.7% annual rate over six months; the 3-month inflation rate of 6.1% is a step down. However, in the month of January food & beverage inflation exploded again, rising by 1.5% on the month. Still, overall Swiss inflation is remarkably well-behaved especially in a more global context.

Industrial activity in the European Monetary Union advanced for the second month in the row, according to previously released manufacturing PMI data. The manufacturing industrial production reading for the entire euro area is not yet available; however, for 13-European Monetary Union member countries, the median increase in December was 0.2%; this follows a 1.6% median increase in November and a decline of 1.2% for the median in October. Clearly the industrial production situation weakened in December compared to November and the trend remains weak as well.

Among the thirteen early reporting members, six report declines in industrial production including a decline of 2.1% in Germany and a decline of 1.8% in Spain: two of the four largest European Monetary Union economies. France managed to eke out a manufacturing gain of 0.3% while Italy posted its second increase in a row, a rise of 1.7% for manufacturing industrial production in December.

These results compared to November when only two of these reporting countries showed declines and to October when 12 of 13 reporting countries showed declines with Greece as the exception logging an increase of only 0.2% in October for manufacturing output.

Sequential patterns Sequential growth patterns that track growth rates over 12 months, six months, and three months show the median gain over 12 months at a -0.8% annual rate, the median change over six months is at a -2.1% pace, and the median change over three months just at a -2% pace. The pattern falls just short of being a sequential deceleration, but it clearly is a weaking trend and a persisting contraction. Over these periods, we find only 27.3% of the reporters show manufacturing output accelerating over 12 months, 53.8% show output accelerating over six months compared to 12 months. Over three months, output accelerates in 45.5% of the reporters compared to their six-month pace. The year-on-year comparisons show output broadly decelerating - nearly universally- compared to growth rates of 12-month ago across countries. Over six months there are more accelerations than decelerations but by a small margin and over three months more decelerations than accelerations, also by a small margin.

Deceleration and Acceleration by country Austria, Germany, Spain, Luxembourg, and Ireland show declines in output on each of the three timelines. France, Italy, Malta, and Portugal show output increases on all three timelines. Output trends show persisting deceleration for Austria, Germany, France, Luxembourg, and Ireland. There is persisting sequential acceleration only in Portugal. Among non-EMU reporters in the table, Sweden and Norway show ongoing deceleration. Obviously, these results describe a great deal of weakness in train vs. a small minority of strength (Portugal!).

Quarter-to-date The quarter-to-date growth rates (QTD) show declines in five EMU members with output in one country unchanged. Output declines QTD occur in Italy, Netherlands, Spain, Luxembourg, and Greece; output is unchanged QTD in Germany. Non-EMU reporters in the table all show QTD output declines. On a QTD basis, weakness dominates strength; however, the median change on the quarter is a gain at a 0.1% annual rate of growth.

Weak growth since COVID struck Evaluating output trends since January 2020 - just before COVID came to town - we find the median net gain on this nearly 3-year period is 1%; about one third of one percentage point per year on average. It has been a period of ups and downs and weak growth overall. However, only Germany, France, Luxembourg, and Portugal log output declines on this timeline. But Germany, the largest economy in the euro area, logs a drop of 6.3%; that will drag the EMU result down considerably.

Month-to-month inflation moved higher in the EMU and across the EMU region on the month. But that masks the sharp slowing in three-month inflation that remains on the books for the EMU as a whole, for Germany, for France, and for Italy with Spain as the lone ‘large EMU economy’ exception. Even so, all four of the largest EMU economics and the EMU itself show inflation lower over three months (annualized, of course) than over 12 months. Comparing 12-month inflation to the 12-month pace of 12-months ago, inflation is still higher for the EMU, Germany, France, and Italy with Spain as the sole exception. In Spain, 12-month inflation is at 5.8% compared to a pace of 6.2% one year ago. However, comparing the 12-month inflation rate in January to the 12-month pace in December produces a mixed result with inflation lower in the EMU, Germany, and Italy, but higher in France and in Spain.

The Big picture In the big picture, the sequential trends (12-months to 6-months to 3-months) generally show inflation ratcheting lower but not necessarily monotonically. In Italy, inflation accelerates over six months before decelerating sharply over three months. In Spain, inflation decelerates over six months but then pops up over three months but still stays below its 12-month pace, keeping the general notion of deceleration intact.

Core inflation? Only Italy offers up some early core inflation. That result is not as encouraging, showing inflation higher over 12 months than it was a year ago. It shows 12-month inflation higher in January than in December and shows inflation accelerating from 12-months to 6-months to 3-months. Italy’s month-to-month inflation readings for core inflation show stubborn 0.5% increases in November and December capped by a 0.8% gain in January. The Italian core trend is a cautionary benchmark – it may not be generalizable, we don’t know.