Economy in Brief

Among the 18 countries and regions surveyed in August, 13 of them worsened month-to-month. That’s a clear bias in terms of numbers of countries that saw manufacturing weaken in August. Among the exceptions were Indonesia, China, Russia, France, and Turkey.

Over three-months compared to six-months, once again there are 13 members of this group that show worsening. Over six-months compared to 12-months, there are 16 members that show worsening. Over 12-months compared to the average from 12-months ago, there are eleven members out of 18 that show worsening.

The median observation in August deteriorates only 0.2% from the month before. Over three-months, the median observation deteriorates by two points from the six-month average. Over six-months, even though there are more worsenings than improvements, there is a slight, 0.4%, improvement in the median observation compared to the 12-month average. And over 12 months, despite the lowest worsening count of all these horizons, there was a decline in the median of 1.7 points.

Queue rankings On balance, the worsening is gradual and ongoing, but it is bringing the manufacturing PMI levels down to much lower levels. If we look at the queue rankings over the last 4 ½ years, there are only four out of 18 members whose August observations rank above their median values over the last 4 ½ years. Those are Russia, India, Indonesia, and Malaysia. As for large economic areas, the euro area has a 32.1 percentile standing, the U.S. has a 22.6 percentile standing, the U.K. has a 3.8 percentile standing, Japan comes close to its median with the 49.1 percentile standing, and China has a 17-percentile standing.

PMI values since before Covid struck Half of the respondents in the table have higher manufacturing PMI standings than they did in February 2020 on the brink of COVID striking. However, the euro area, Germany, France, and the U.S. show increases that are improvements of barely one point or less over this span of 2 ½ years. The strongest gains from February 2020 are from Japan that’s up by 3.7 PMI points, and Russia that’s up by 3.5 points. After that, Vietnam is up by 2.2 points (based on its July reading), and Malaysia is up by 1.8 points. All-in-all conditions have not been very robust over the last 2 ½ years.

The French statistical agency has released its preliminary HICP estimate for August; the month shows a flat inflation performance compared to July. Unfortunately, August shows only the observation on French inflation for the headline. We really can't dig into the details on why things changed that much in August compared to July. However, the headline shows the 12-month inflation rate in August dipped to 6.5% from July's 6.8%. For France in August the year-on-year inflation rate is decelerating. And the gain of 6.5% year-over-year in compares to a 2.4% pace in August one year ago. While inflation was excessive a year ago, it was excessive in a moderate sense. This makes it clear that the overshoot from inflation is really a recent phenomenon with these very high inflation rates reflecting events mostly over the last 12 months. Sequentially inflation now shows a 6.5% pace over 12 months, a 7.6% pace over six months and a lower 5.7% pace over three months. That is the new August profile.

Trends as of July The rest of the table concerns how French inflation looks at the up-to-date statistics through July and earlier. In July, the core rate had increased by 0.8% from June's 0.2%, an acceleration even as the headline had cooled to a 0.5% July gain compared to 0.8% in June.

The sequential calculations on the HICP core show inflation have accelerated from a 4.3% pace over 12 months to 5.8% over six months to 6.2% over three months. On that same timeline, the CPI excluding energy for France accelerated from 4% over 12 months to 5.4% over six months to 5.6% over three months-roughly like the core path in the HICP framework. The CPI headline for France is on the same time dimension in the other data in the table, except of course for the headline of the HICP.

The headline of the CPI shows both acceleration and the deceleration. The 6% annual gain over 12 months accelerates to 8.4% over six months then it decelerates to 7.5% over three months. This, of course, is a contrary pattern to both core measures both of which are in the same timeline as the CPI headline.

The French domestic CPI could be translating the recent weakness in Brent oil prices into a somewhat slower headline gains for the CPI. Brent prices have decelerated over the three months ended in July, rising only at a 12.8% annual rate after rising at a 72% annual rate over six months and at a 61% annual rate over 12 months. In fact, in July the month-to-month change in the price of Brent expressed in euros fell by 10.8%. One thing all central banks are looking forward to is getting some relief on their inflation from what has been weakening energy prices even though the longer-run outlook for energy remains quite difficult as many countries have stuck to their ‘Green agendas' despite the pain of it. In the euro area, there is added concern about energy supplies let alone price.

In the most recent month for which we have detailed data (i.e., July 2022), we see declines in three categories among the 11 detailed and the CPI report. Prices fall month-to-month for healthcare, transportation, and communications. Healthcare prices have been weak for some time in France; they fell by 0.6% over the last year and in the previous 12-month period they had fallen by 1.7%. This is a structural change in healthcare prices. Transportation prices fell by 0.4% in July after rising by 3.3% in June; they have been ramping up at a double-digit pace over three months, six months and 12 months because of the contribution to energy costs from rising energy prices. Communication goods include a lot of technology. Technology alone helps to moderate communications prices; those prices are up by 0.1% over 12 months and up by 1.9% in the previous 12 months. In addition to their fall in July, communication prices were flat in June.

France saw some inflation pressures too. Month-to-month inflation for restaurant & hotel prices rose by 1.8% in July after rising 0.4% in June. Food prices are still strong rising at 1.3% month-to-month after June's 1.3% rise. Food price gains are still in double digits over three months and accelerating. Restaurant & hotel prices are also in double digits over three months and six months, and they also are accelerating. This reflects the return by consumers to the restaurant and hotel sector after COVID had essentially redlined that sector for a prolonged period.