Economy in Brief: May 2023

French inflation continues to be unrelenting and hot. The HICP measure of inflation rose by 0.6% in April. France’s domestic CPI measure rose by 0.6%, but its gain excluding energy is 0.5% in April. These continue to be very hot monthly readings.

France’s HICP inflation rate is high and it's accelerating. Over 12 months the pace is 6.9%, over 6 months it holds at 6.9%, and over 3 months it jumps up to an 8.4% annual rate.

France’s domestic CPI rises by 6% over 12 months, it steps up to a 6.3% pace over 6 months and runs at an annual rate of 7.9% over 3 months. The domestic CPI excluding energy gains 5.8% over 12 months, runs at a 6.1% annual rate over 6 months and jumps up to an 8.4% annual rate over 3 months. French inflation is not just high and stuck; it's high and accelerating.

France is not showing any sign of inflation progress even though the ECB continues to hike rates. And the whole of the European Monetary Union headline inflation has peaked and fallen off, but France is not following this pattern; France is now more or less the same pattern as the United Kingdom where inflation has gone up and refuses to come down. France’s ex-energy inflation rate continues to accelerate.

Inflation in April may have gotten some boost from oil prices where Brent measured in euros rose 6.4%. But that's after two months of declining oil prices. In fact, Brent oil prices are lower over three months, 6 months, and 12 months although the rate of change over those horizons is sequentially diminishing.

Besides being hot and accelerating, French inflation also remains quite broad. The diffusion calculation shows that over three months inflation is accelerating across 72.7% of the major categories compared to its pace of six-months ago. Over 6 months, it's accelerating in 63.6% of the categories compared to its pace over 12 months. Over 12 months the diffusion gauge drops below 50% indicating that inflation is not accelerating in most categories compared to the pace of 12-months previously; the 12-month diffusion metric is at 45.5% just below the neutral 50% mark

The UK economy grew by 0.1% in the three months to March 2023, matching market expectations. On a monthly basis, GDP fell by 0.3%, after showing no growth in February. The contraction in output in March was mainly driven by a weaker services sector, the output of which declined by 0.5% after a fall of 0.1% in February. In particular, output in the wholesale trade and retail sector fell by 1.4% thanks to much weaker household spending in response to rising inflation. Output in consumer-facing services fell by 0.8% in March 2023 after a rise of 0.4% in February.

In contrast, growth trends in other key component sectors such as production and construction were more upbeat. Specifically, industrial production grew by 0.7% in March which was the strongest pace of growth since May 2021. Construction sector output also grew by 0.2% in March following growth of 2.6% in February.

Despite the increase in output in Q1, GDP is still some 0.5% below its pre-pandemic level. Still, the economy has now eked out two consecutive quarters of growth, which chimes with the Bank of England’s revised view that the UK may now avoid a recession in 2023.

Japan's economy watchers index improved in April to 54.6 from 53.3 in March. March had improved to 53.3 from 52.0. The index has been increasing steadily over 12 months. It is higher by 5.1 points over 12 months, by 3.8 points over 6 months and by 6.1 points over 3 months. A lot of improvement has come in the last few months.

In April, all the diffusion readings in the economy watchers current index are above 50, indicating expansion for the category, with two exceptions: housing and manufacturers. Housing has a 46.1 diffusion reading and has been below 50 for several months running. The manufacturing index has been vacillating, but the April value of 49.6 shows only a very slight contraction in progress in manufacturing.

To evaluate these diffusion indexes by seeing where they stand relative to historic data, refer to the queue standing column at the far-right hand portion of the table. Among the ten entries under the current index, six have queue percentile standing in the top 10% of values since April 2002. All readings stand above the 50th percentile signaling that all are above their historic medians for this period. Among the headline and the nine components, the headline and seven components show increases on all horizons: over 12 months, over 6 months and over 3 months.

The future readings for the economy watchers index also show steady increases with the 55.7 diffusion index in April, better than its 54.1 diffusion reading in March which exceeds the 50.8 reading for February. The future headline also shows gains over all three horizons: over 3 months, over 6 months and over 12 months. Like the current index, all the percentile queue standings for the future index are above the 50th percentile mark - all categories are above their historic medians. In addition, the headline and six components have standings in their top ten percentile.

The raw diffusion readings for April in the future index show only housing below 50 in its diffusion value. And like with the current index, housing has a string of sub-50 diffusion readings. However, its queue standing remains above its 50th percentile on data back to 2002.

Not only is the current assessment quite upbeat but so is the outlook assessment from the future index.