Economy in Brief

The EU Commission index for the EMU area fell in December after remaining steady in November and declining in October. November had seen increases in EMU Commission country-level sentiment readings in all but 15 of the 18 early reporters. However, now, in December, the EU country level readings are falling in 13 of 18 early reporters, including in three of the four largest EMU economies.

In December, sector readings show that EMU-wide the industrial readings fell sharply, consumer confidence backtracked as retailing and construction were at unchanged readings month-to-month. Strengthening month-to-month was only the service sector reading.

In terms of standings, the overall EMU standing is at the 24.7 percentile, right at the border of the lower quartile. The industrial sector has a bottom 12.8 percentile standing, with consumer confidence at its 25.4 percentile standing. Services, despite the sector’s rise this month, has only a 35.9 percentile standing. However, retail and construction have standings that are above their respective medians at a 69.4 percentile in retailing and a 72.3 percentile for construction.

Despite bottom quartile consumer confidence standing, retailing has a 69.4 percentile standing. This seems unusual for retailing to hold up so well despite such weak overall sentiment and such weakness in consumer confidence.

Country readings show only five are above their historic medians. Only the small EMU nations Cyprus and Lithuania have sentiment standings above their 70th percentile. In contrast, nine countries have percentile standing below their 30th percentiles – including the EMU overall metric.

EMU inflation rose by 0.2% in December after gaining 0.1% in November and rising by 0.3% in October. The headline rate is up for three months in a row. The year-on-year pace is 1.7% in September, rises to 2.0% in October, to 2.3% in November, and then to 2.5% in December. These are small changes to be sure, but it is a clear adverse trend.

EMU-wide core inflation fell from 3.3% year-over-year in February 2024 to 2.9% in March 2024. For March onward, the core rate has fluctuated between 2.8% and 3.0% - nine months running with the December core reading as yet unavailable.

While headline inflation appears to be toeing the line on inflation, the core is stuck nearly a percentage point higher. But growth in the EMU area is weak and the ECB has been cutting rates largely without opposition in this environment.

The trends are more convoluted. In the table, the country level data among large EMU members shows headline HICP rates are accelerating over three months compared to six months. In Germany, inflation accelerates over six months compared to 12 months and over three months compared to six months. Only Italy shows headline inflation lower over three months than it is over six months and in the case of Italy inflation is falling at a 1.6% annual rate.

Core inflation or ex-energy measure are in the table for Germany, Italy, and Spain. Italy and Spain show core inflation decelerated to a sub 2% pace over three months. But in Germany, ex-energy inflation is stubborn at 3.1%, the same as its six-month pace.