Economy in Brief: September 2024

Car registrations in Europe are plunging and they're plunging pretty much everywhere where the data are being reported. One of the reasons for this is the sudden lack of popularity in electric vehicles, whose purchase demand has declined precipitously.

Country level data show that declines in registrations in August range from a month-to-month decline of 11.8% in Germany, to declines of 2.6% each in France and the United Kingdom. Germany, France, Italy, and Spain show substantial month-to-month declines in August and in July. Only the U.K. is an exception to this two-month losing streak; the U.K. 2.6% decline in registrations in August comes after a 3.9% increase in registrations in July.

Year-over-year total European registrations are down by 20.6%; smoothing this to look at declines over a three-month average reduces the drop to 6.6%; however, whether we look at raw declines or smoothed declines, the declines are generally getting bigger over shorter periods. The smooth declines, for example, moved from a 6.6% decline over 12 months to a 9.9% annualized decline over six months to a 10.9% annual rate of decline over three months. The annualized rate of decline is growing. The raw number for the year-over-year decline is a drop of 20.6% over 12 months, over six months that decline pace accelerates to 28.1% annualized, although there is a slight pullback showing a decline of 24.4% over three months; it's still a greater pace of decline than over 12 months.

The country level data show us that year-over-year declines range from exceptionally weak numbers like -27.6% in Germany and -21.1% in France, to more modest declines like -2.1% in the U.K. and -5.9% in Spain. However, all five reporting countries show year-over-year declines and of course the aggregate numbers presented are dismal.

If we compare what's going on with registrations now to the level of registrations before COVID struck, we're looking at double-digit declines. Raw net decline calculations round to double-digit declines for all five countries. The biggest shortfall from January 2020 levels is the U.K. that is 25.5% lower; however, Germany is also 23% lower, Italian registrations are about 21% lower, registration in France are 14% lower, while in Spain registrations are 9.5% lower.

Inflation in the United Kingdom, as measured by the CPIH, rose by 0.4% in August as well as for the measure excluding energy, food, alcohol, and tobacco that rose by 0.5%. The recent sequence of monthly inflation rates is not hospitable or kind to the notion of the Bank of England doing any further rate cuts anytime soon.

Sequential inflation readings show the headline CPI measure up 3.1% over 12 months and at a 2.9% annual rate over six months. It further accelerates to a 4% pace over three months. The expanded core excluding energy, food, alcohol, and tobacco is up by 4.4% over 12 months, up at a 5.1% annual rate over six months and continues to rise at a 5% annual rate over three months. Both series are at some point about a tick or so short of being persistently accelerating measures. However, putting technicalities aside, inflation clearly is accelerating in the U.K. and both measures embrace generally accelerating trends. The year-over-year headline pace of 3.1% is too fast; the core rate of 4.4% is way too fast. The three-month growth rates that have the headline at 4% and the expanded core 5% are far too fast.

Applying the diffusion concept to 12-month inflation compared to a year ago, inflation does decelerate on that time horizon with a diffusion value only at 18%. Diffusion above 50% means inflation is accelerating in more places than it is decelerating. Below 50% diffusion flags inflation that is more broadly decelerating. The 12-month reading flags a sharp broad slowing for inflation. Of course, the 12-month headline inflation rate is 3.1% and a year ago it was running at twice that pace of 6.3% so finding general broad deceleration is not too surprising. The next step is a comparison of six-month inflation to 12-month inflation. Here we see diffusion up to 63.6%. So, inflation is accelerating in more categories than it's decelerating over six months compared to 12 months, not a good development. Over three months, however, headline inflation accelerates to 4% while the core is more or less unchanged at around the 5% mark, but diffusion falls back to 36.4% indicating that inflation is only accelerating at about one-third of the categories over three months. So that's a better development.

On a month-to-month basis, diffusions in August and July are both above 50%; but diffusion in June fell a little short of that with a diffusion gauge at 45.5%. Recent months seem to show some inflation pressures on balance.