Economy in Brief: 2022

German inflation surged in March, jumping by 2.1% month-to-month in March alone. In ECB parlance, the HICP target is for a gain of 2% over 12 months, not in one month. The German contribution to EMU-wide inflation is way over the line. German core HICP inflation is more modest in March but still excessive. It is up by 0.5% month-to-month for an annualized rate of 6.1%.

Headline inflation trends Over 12 months, the German HICP is up by 7.6%. Over six months, the annualized pace is 11.4%. Over three months, the pace is up to a whopping 17.6% - I won't try to annualize the month-to-month gain for you, but that is going to be in the stratosphere.

Core inflation trends The core rate is up by 3.7% over 12 months and its annualized pace over six months rises to 4.2%. But over three months, the HICP core pace is back down to 3.7%. That is good news and evidence of inflation resilience in the face of a raging headline. However, the German domestic CPI is not so upbeat as its 3-month core pace accelerates from three-months to six-months to 12-months, with no drop-back.

Inflation diffusion – a hopeful sign? Inflation diffusion, the breadth of inflation acceleration across the main CPI categories, is at 81.8% for year-over-year inflation-that metric compares the 12 month-rise in price changes across categories to their respective 12-month increases of 12-months ago. Over six months diffusion drops to 54.5%, a comparison of inflation acceleration over six-months relative to 12 months. That acceleration is modest despite the actual very strong gain of inflation over six months. Over three months as well the diffusion reading is 54.5%; that metric compares inflation acceleration over three months compared to over six months. Diffusion at 100% indicates inflation accelerating in all categories; diffusion at zero percent indicates inflation accelerating in no categories. 50 percent is the 'point of neutrality' where inflation acceleration and deceleration are balanced. At 54.5% diffusion three- and six-month inflation acceleration this month is showing some net increased inflation pressure, but not much. Certainly, diffusion suggests that the breadth of inflation is not as intractable as inflation strength suggests. Whether this is good news or evidence that inflation must spread further before it can settle down, only time will tell.

Where inflation is most intense Over three months inflation accelerates in six categories: a 46.8% annual rate in transportation, a 26.8% annualized gain for rent & utilities, a 9.7% pace for food, a 8.8% for restaurants & hotels, a 6.6% pace for alcohol, and a -1.3% pace for communications (since over six months prices in that category had fallen even faster, the 1.3% drop is technically a period-to-period acceleration). Over six months the same categories accelerated except that communication drops out replaced by recreation & culture. Over 12 months acceleration is broad based; it accelerates everywhere except for two categories: education and 'other.'

Brent oil prices During this sequence of dates, Brent oil prices measured in euros have accelerated from a rising pace of 85.3% over 12 months to 156.8% over six months to 461.1% over three months. A great deal of the inflation acceleration impulse is coming from oil and commodities and through food. Transportation and 'rent & utilities' are the leading two inflation categories in each time segment with food in the third position each time. Still, food and energy are important and just because inflation is intense there does not mean it will stay there and not migrate to other categories. When food and energy cause cost pressures, that often generates broader price pressures as well. So, while the breadth of inflation in Germany is restrained since so much of the inflation has been recent, it is not yet clear how much of it has yet to be transmitted into final product prices before prices can stabilize and inflation can settle down.

The OECD leading economic indicator for the entire OECD region fell by 0.1% in March, matching its 0.1% decline in February. Over three months the index is falling at a 0.7% annual rate, the same pace as its decline over six months. Over 12 months it's rising by 2.7%. The standing of the index level is at the queue percentile standing at the 50% mark putting at exactly at its median - a neutral standing overall for growth prospects.

The index for the OECD-7 was flat in March after being flat in February. The index shows two declines, one over three months and another over six months with a 3% increase over 12 months. The index level standing is slightly better than for the whole of the OECD region at its 52.7 percentile.

The euro area shows a -0.1% reading for March, the same as February. Hit declines at a 1.4% annual rate over three months compared to minus 1.2% over six months and the 2.9% gain over 12 months, the index is at a 57.2 percentile standing for the euro area, a more moderate position.

For Japan, the OECD index is flat in both March and in February. It's flat over three months; it declines at a 0.1% pace over six months and is up by just 1.5% pace over 12 months. Its index logs a 65.8 percentile standing, marking it as stronger than the other OCED standing in the table. Japan's economy has been and remains sluggish.

The U.S. metric shows no change in March and no change in February with a 0.1% rise over three months. It logs a -0.2% change over six months and over 12 months at a 2.9% increase. The U.S. LEI has a 51-percentile standing based on its index level, leaving its leading economic index just slightly above its historic median and pointing to a 'normal' outlook for growth.

Evaluating six-month growth rates in the LEI Taking a second look at these LEIs looking at them in terms of their six-month growth rates, which is the way the OECD likes to look at the indicators for their leading index properties, we find that in March all of these countries and these groupings show declines; when we add China to the mix it also shows a decline. In February, there is weakness across the board apart from Japan that's flat and the euro area that logs in at a 0.1% increase. Looking at the growth rates over six months for six-months ago, we see negative values for the U.S. and for China with small to modest positive percent changes for Japan, the euro area, and the OECD group as a whole as well as for the OECD-7. Looking at the assessments for 12-month growth that existed one-year ago, we see positive values across the board for all the countries and all the groupings including China.

However, we can also rank these growth rates. And ranking the growth rates on their recent six-month growth leaves every single one of them below their historic median that means a ranking below 50%. The strongest rankings from March are from Japan and the U.S. with each of them sporting a 44.2 percentile standing. The weakness ranking comes from the euro area at a 21.2 percentile standing, followed by a 27.4 percentile standing for the OECD area as a whole and a 29.8% standing for China alone.

The OECD leading indicators show great deal of sluggishness globally. The economies for the most part rank somewhere in the range of sluggish, weak, or declining. That is in terms of their outlook. We continue to see actual economic growth positive across the OECD area and even in China where the zero COVID policies have held back growth by quite a lot. However, the leading indicators warn about the future and these indications come amid a period where inflation has been flaring and with central banks beginning to become more restrictive. It continues to be an uneven patch for the global economy.