Economy in Brief: September 2022

PPI Inflation in Portugal Portugal's PPI falls by 0.9% in August after rising 0.4% in July and by 2.4% in June. This sequential growth rates for producer prices in Portugal show an annual rate of 22.5% over 12 months that eases slightly to 21.7% over six months, then it falls dramatically to an 8.2% annual rate over three months.

Manufactured goods at the producer level show a decline of 1.4% in August after a 1.4% increase in July and a 3.5% rise in June. Manufacturing prices were at a 23.4% pace over 12 months then accelerate to a 36.3% annual rate over six months then decelerate sharply to 14.8% pace over three months. Clearly the hallmark for inflation here is ‘different strokes for different folks.'

Looking at PPI sectors in Portugal monthly, consumer goods prices rise by 0.7% in August, the same as in July but are down from the 1% gain in June. Broader sequential growth rates show consumer goods inflation up 13.9% over 12 months, rising to a 16.6% pace over six months and easing back to a 10% pace over three months. Intermediate goods prices rise by 0.4% in August, by 0.2% in July, and by 0.6% in June. Its broader sequential growth rates show a 19.8% annual rate gain over 12 months, nearly the same gain at a 20% pace over six months, slowing sharply to a 4.9% annual rate gain over three months. Capital goods show a 0.5% increase in prices in August, after 0.3% drop in July, and a 0.5% drop in June. Capital goods sequential patterns show prices rise by 4.7% over 12 months, the pace picks up very slightly to a 5.2% pace over six months then plunges to decline at a 1.1% annual rate over three months.

Portugal shows very different inflation performance and trends for different sectors for data up to date through August. Intermediate good (followed by consumer goods) have the highest inflation rates among sectors over 12 months and six months; consumer goods lead the way higher over three months. Capital goods inflation is the lowest on all horizons, showing a sharp deceleration over three months and logging a net price decline. Capital goods run a rather moderate increase over 12 months of 4.7%.

Retail sales in the United Kingdom fell by 1.7% in August after rising 1.5% in July and 1% in June. Sequentially growth rates for nominal retail sales grow by 5.3% over 12 months, at the same 5.3% annual rate over six months, and slow to a 2.9% annual rate over three months.

However, that doesn't begin to tell the story since inflation is raging and driving the nominal numbers higher. Retail sales volumes fell by 1.6% in August, rose by 0.4% in July and fell by 0.2% in June. Retail sales volumes are falling by 5.3% over 12 months, falling at a 6.3% annual rate over six months and falling at a 5.4% annual rate over three months. In each of these sequential periods, retail volumes decline. They decline at a pace of 5% or somewhat greater in each period. While retail sales in the U.K. continue to deteriorate, the pace of deterioration remains more or less steady; it's not increasing and it's not diminishing. However, compared to a year ago, the decline in sales volumes is greater because the year-over year-volume decline of one year ago was at a 4.4% annual rate.

In the current quarter-to-date (QTD), retail sales are posting a strong-seeming gain at a 7.3% annualized rate. However, these are nominal sales and the inflation rate in the U.K. is high. Retail sales volumes QTD show a contrary 3.9% annual rate decline. These calculations are for the months of July and August taken over the second quarter base for sales. They reflect an ongoing contraction in retail sales volumes. Based on the two (of three months) quarterly data, there may be a slight let up in the pace of decline in retail sales in the third quarter.

Economists have an expression for nominal values particularly when inflation is high. The references to something called ‘money illusion.’ It's the illusion that because something costs a lot more money there's more of it. For example, the standings of the growth rate of nominal retail sales is in the 84.6 percentile. The gain in nominal retail sales would seem to be in the top 15% of all sales gains since August 2001 the period of overwatch these standings are calculated. That would be strong. However, if we apply the same ranking criteria to the growth in sales volume, retail sales volume has quite the opposite 2.4-percentile standing. It is real sales- sales once we account for the effects of inflation- that are weak. They have been weaker than this only about 2.4% of the time and they have been higher than this over 97% of the time.

Passenger car registrations have rebounded after a prolonged period of weakness they rose by 9% in August and 17.8% in July after falling by 5.9% in June. Past year car registrations are up by only 0.9% over 12 months; they're falling at a 23.9% annual rate over six months, and they are rising at a 113.3% annual rate over three months. Clearly there is a recent surge in registrations that still hasn't elevated the level of passenger car registrations materially.

The table also presents some survey data on U.K. retail sales. The survey data show retail sales for the time of year assessed as slightly stronger in August than in July; the volume of orders year-over-year has made a significant improvement compared to July showing a change of 14 compared to a change of -5. By comparison, consumer confidence in August fell by 3 points after being flat in July; these are calculations of month-to-month changes in underlying indexes.

Sequential data show simple changes over each period in the heading; for example, retail sales for the time of year show the index improved by 3 points over three months, while it fell by 13 points over six months and fell by 23 points over 12 months. The volume of orders year-over-year survey value fell by one-point over three months, compared to falling by 10 points over six months and 67 points over 12 months. Consumer confidence fell by 4 points over three months, by 18 points over six months, and by 36 points over 12 months. Clearly the year-over-year results show a great deal of weakness in each of these survey metrics. The quarter-to-date shows some increase in retail sales for the time of year as there is an 11.3-point change for the better, compared to the volume of orders series that declines by 1.7 points, and consumer confidence that decline by 2.8 points. The queue standings for the surveys are executed on level data, not on change data. Retail sales for the time of year has a standing at its 71.9 percentile. Volume of orders year-over-year are assessed at 49 percentiles standing, just below its historic median. The consumer confidence reading stands at an all-time low on data back to August 2001.

U.K. retail sales are weak. The nominal numbers dress up the results, but the volume numbers speak clearly to the reality of weakness and enduring weakness and U.K. retail sales. The series on passenger car registrations has been extremely weak but is undergone some significant rebound over the last two months. Inflation in the U.K. continues to run hot; that means there will be more rate hikes ahead and more weakness for the economy and for retail sales in the future.