Economy in Brief

The National Bank of Belgium index for consumer confidence rose to -11 in August from -13 in July, returning to its June level. Three months ago, the index stood at -13. Six months ago, it stood at +1. Twelve months ago, it stood at +5. Despite the month-to-month improvement, the index has been on a weakening trend; it has weakened most sharply over three months. The index positions itself in the lower one-third a of its values since 1991 with a 32.1 percentile queue standing. This reading means that the index has been weaker than its current value about one-third of the time, marking this as among some of the weaker readings for Belgium since 1991, roughly the last 30 years.

The economic situation for the last twelve months made an improvement to -57 in August from -63 in July. This is a weak assessment. The August trailing assessment of -57 has a queue standing in its lower 7.6 percentile. The companion rating this month, for the next twelve months, looking ahead, has a reading at -32, which is a slight improvement from July's minus 37 rating. The 12-month ahead August reading is even (slightly) weaker in its historic queue than the evaluation of the past twelve months with a 5.8 percentile standing. Clearly the economic situation has been poor, and is expected to remain poor, despite the slight month-to-month improvement. This month's report earns the sound of one-hand clapping.

Price trends in the BNB survey over the previous 12 months more or less stabilized with a reading of 86 in August compared to 84 in both June and July. Over the next 12 months, some progress on inflation is expected with the index falling to 19 compared to 25 in July and 34 in June. Nonetheless, the broad progression of this index has been for deterioration with the 12-month-ago reading at 19, the six-month-ago reading at 33, and the three-month-ago reading at 41. Clearly, this shows a local trend of improvement that is resisting a broader trend of deterioration. The standing for price trends for the next 12 months is at its 52.6 percentile mark. This is an extremely sharp improvement from the 99.7 percentile standing that evaluates price trends over the last 12 months. The standing assessments show that inflation has progressed from some of the very weakest reading in the history of the survey to readings that are far more centrist near the middle of the distribution. That level of assessment might seem surprisingly high given the height of inflation in the EMU relative to target that prevails today. It may be colored partly by encouragement that the past extraordinary inflation environment is being put to rest.

The unemployment forecast shows some heightened risk of unemployment in the August index as it climbs to 16 from a level of 12 where it stood in both June and July. The unemployment forecast has had an uneven progression from twelve-months to six-months to three-months. Its current standing, at a value of 16, has a 34.7 percentile standing in its historic queue of data marking unemployment expectations is being close to the lower one-third of values in its queue of ordered data since 1991. Unemployment is more greatly feared, but the fear is not pronounced.

The major purchase index for the next 12 months has stabilized over three months at a reading of -20 in August. It had steadily eroded from twelve-months to six-months to three-months. Similarly, the present index has eroded and shows only a one-month improvement after a string of erosion.

The financial situation for the last 12 months stabilized at readings of -17 in each of the last three months. However, that represents a deterioration since 12 months ago the reading was -5, six months ago it was -11 and three months ago it was -13. The assessment of the last 12 months has deteriorated and then stabilized. It has stabilized at a level that is in the lower one percentile of its historic queue up data! The assessment of the past 12-months has been extremely poor for a household's financial situation. Over the next 12 months, the household financial situation garners a -8 reading in August compared to -7 in July and -8 in June. The broader progression shows that twelve months ago, the household assessment was at zero, six months ago it was at -5 and three months ago it was at -9. The current -8 rating has a 1.6 percentile standing, once again an extremely weak reading, among the weakest 2% of ratings by households of their financial situation looking ahead to the next twelve months since 1991.

Households rate their ability to save over the next twelve months more favorability this month; the favorability of saving currently improved slightly as well. Their respective standings, however, are moderate. The next twelve-month reading has a 63.9 percentile standing and the assessment of the current ability to save has a 52.2 percentile standing. These are mid-range assessments.

Japan's inflation rose by 0.4% in July after slowing to a 0.1% gain in June. The category, all prices excluding fresh food saw prices grow by 0.5% compared to a 0.2% June gain. All items less food & energy rose by 0.2% after gaining 0.1% in June. Western economies would kill for these trends…

Across the eight major components listed in Japan's CPI, four of them show extremely weak (or no) gains month-to-month in July. Education, medical care, and miscellaneous goods show prices rising by 0.1% while housing showed no gain at all month-to-month. Food & beverage prices rose by 0.5% month-to-month. Clothing & personal items prices rose by 0.5% and transportation & communication prices rose by 0.4%, while reading & recreation prices surged by 0.7% but that followed a 0.6% June drop.

For the headline and for most components, in fact - for nearly all components, Japan shows no tendency- no clear trend - for inflation to either accelerate or decelerate. The one significant departure from this is for all items excluding food & energy where prices rise 0.3% over 12 months, at a 2.2% annual rate over six months and at a 2.4% annual rate over three months completing a clear sequential cycle of trend acceleration for the core CPI.

However, the headline and the headline excluding fresh food do not show any such pattern nor do any of the 8 major components of Japan's CPI. None of the 8 main components show either inflation clearly accelerating or decelerating. All of the components have a mixed pattern. Only when in the core, with food & energy stripped out, does this trend emerge. Over 12 months compared to the year ago, headline and core inflation both accelerate as does the total CPI excluding fresh food. And among the eight major categories inflation accelerates for food & beverages, medical care, and for transportation & communication. This is despite the fact that the inflation rates actually are negative for medical care and for transportation & communication but those prices fall at a slower pace over 12 months than they did one year ago, hence ‘acceleration.'

Six-month trends show acceleration for the headline to the core CPI and for the total CPI excluding fresh food. Food & beverage prices accelerate, housing costs accelerate, miscellaneous prices accelerate, reading & recreation prices accelerate, and transportation & communication prices also accelerate over six months compared to 12 months. Among the eight components of the CPI, five of them accelerate and three of them decelerate.

Three-month trends show a weakening of inflation compared to six-months for the headline CPI and for the headline excluding fresh foods. The core rate continues to accelerate. Among the eight detailed categories, prices accelerate in half and they decelerate in the other half. Prices accelerate for clothing & personal items, for education, for medical care, and for reading & recreation.

If we calculate acceleration in a truncated fashion, by skipping the six-month to one-year change and just comparing the three-month annualized change to the 12-month change, then Japan's inflation rate accelerates in the headline categories as well as in all 8 detailed product categories. I supposed we can conclude that inflation is lurking in Japan and rising with some degree of subtlety.

We see the strength in prices in the quarter-to-date developments. The current data are for July, so that's the first month of the third quarter. These calculations compute the annualized inflation rate by taking the July gain over the previous quarter's average and compounding that gain from the center of the quarter. On that basis, headline inflation runs at 3.2% early in Q3. The CPI excluding fresh foods runs at a 4.2% pace. The core rate rises at a 2.2% rate which is actually a pace slightly below its three-month pace. The quarter-to-date calculation across the eight detailed components of the CPI show price gains that generally are slightly weaker than the gains calculated over three months.