Economy in Brief

Ireland's HICP rose by 0.4% in January, the same as its gain in February. Ireland is another piece in the puzzle that looks to discover what has caused this inflation; it is everywhere. Its domestic consumer price measure rose by 0.4% as well for the second month in a row\, but the core measure slowed to a gain of 0.2% in January after rising by 0.4% in December.

Overall inflation is trendless, but both the six-month change at 7.1% and the three-month pace at 5.8% are ahead of the year-on-year gain at 5.0%. The domestic CPI and its core have the same set of features with an acceleration over six months and slowdown over three months but with both the three-month and the six-month pace more than the 12-month pace.

However, the diffusion statistics are not worrisome. They show a breadth of inflation over 12 months (compared to 12-months ago) at 58.3. Over six months the diffusion measure that compares six-month to 12-month inflation is up to 0.66, which is a high reading for diffusion. That reading says inflation is accelerating in two-thirds of the categories. But then, over three months, which makes the comparison to the six-month pace, diffusion is only at 0.50, a dead neutral reading showing acceleration and deceleration forces are balanced.

Still, there are some trends by categories: alcohol and clothing & footwear both show steady acceleration in prices – for alcohol it's a strong move higher. Health care costs show a minor acceleration tendency, rising from a 1.1% gain over 12 months to flatten at a higher 1.5% pace over three months and six months. Education costs also step up steadily but still post the second slowest three-month gain among all categories. The lone steady deceleration in price is from the catch-all ‘other' category.

Four categories show weaker three-month gains than 12-month gains while one category shows the same pace for 12-months as for three-months. Seven three-month gains are at a pace that exceeds the 12-month pace. The headline shows a three-month gain more than the 12-month pace by 0.8%. For the domestic CPI the increment is only 0.4%, but for the core it is 0.9%- nearly one percentage point. The average gain across all components (unweighted) is 1% but the median is +0.4%. So, there is inflation in Ireland; it has accelerated somewhat broadly, but not all that strongly...yet.

On balance, Ireland does not seem to have virulent inflation problems. The 12-month acceleration compared to 12 months ago is large at +5.2% and the domestic headline echoes that number. But the domestic core rate accelerates by 2.3% year over year-ago. The headlines clearly show the impact of commodity and oil prices that are still gaining but not by as much. Core gains remain more muted, but will they continue or step up in the wake of those headlines? That's the issue.

Ireland poses the question of whether inflation is bad or was it bad? The three-month pace of 5.4% and 3.9% logged by the domestic headline and core, respectively, are well above target but do not look threatening. The momentum is not threatening either. The three-month diffusion is balanced.

EMU industrial production gained 1.2% in December after rising by 2.4% in November- a clear solid gain and offset after October's drop of 1.5% and a run of four previous months in which output fell in three of four months. In 2021, output declined in 5 of 12 months; it was a mixed year for manufacturing despite there being a solid net gain for output of 1.5%. All sectors saw year-on-year gains except for capital goods where output declined by 2.4% over 12 months.

Overall output is not accelerating in a formal statistical sense, but output in manufacturing is over that hurdle with solid growth of 1.7% over both 12 months and six months that steps up to a pace of 10% over three months.

The annotations in the table track the EMU manufacturing PMI. It has been somewhat erratic and is lower in December and was lower in October, but it rose in November. The PMI fell on balance over six months and three months but is stronger over 12 months.

The quarter-to-date column is now for the completed fourth quarter that shows a decline in activity despite a strong final two months. This calculation (to remind you...) is executed on the Q3 quarterly average for the IP index vs. the Q4 average (it is not a three-month change). Weakness late in Q3 helped to depress the level for output in Q4 despite two strong monthly gains, leaving the average level in Q4 below the level in Q3. Manufacturing output also is weaker in Q4, falling at a 1.5% pace. The weakness is mostly on the back of weak consumer goods output and that is due to weak consumer nondurables output.

By sector, consumer goods show sequential weakness created mostly by weakness in nondurable goods. Intermediate goods are without a formal trend- but do show a very strong gain over three months. Capital goods show a strong rising trend accelerating from 12-months to six-months to three-months and running at a double-digit growth rate of 22.8% over three months.

All sectors in the EMU have recovered relative to their pre-Covid levels of activity. All are showing gains, albeit small ones over that nearly two-year period.

Country trends The table also presents manufacturing IP data for 12 EMU members and two non-EMU members. Unlike the overall sector data for the EMU, some countries have not fully recovered from their Covid setback. Among the 12 EMU members, six still have output trailing its level of February 2020 before Covid struck. One of the two non-members (Norway) is also weaker on balance. Among those members that are weaker on balance are Malta, Germany, France, Portugal, Luxembourg, and Spain.

On the month only four countries report weaker IP and three of those are EMU members: Austria, Italy, and Malta. Five EMU members showed declines in November and three showed declines in October.

EMU member growth is solid over various periods as well with only three members that are net weaker over 12 months, four weaker on balance over six months and three showing declines over three months. However, in the quarter-to-date, there are six EMU members that show output declining relative to the third quarter.

The chart at the top shows output is getting past its rundown deceleration phase in the wake of its Covid hammering then explosive rebound. But this is a nascent rebound. Capital goods, a sector that was hit hard, is now gathering a strong rebound. It has monthly growth of more than 1% for three months running. That is more impressive than having growth promoted by a single explosive month. Other indicators also suggest that investment demand may be picking up. In the early stages of Covid recovery, there was so much slack that capital investment was not on the front burner. Now, as supply issues continue to loom and demand continues firms, apparently, are ready to commit to new investment again for something other than hand-to-mouth survival.