Economy in Brief: June 2025

Japan’s PPI in April edged higher, rising by 0.1% month-to-month. For all manufacturing, the PPI stepped back and declined by 0.4% month-to-month. Both of these follow stronger increases in the previous months.

Still, these headline PPI shows a gain of 4.1% over 12 months, an expansion pace of 3.9% annualized over six months and a gain over three months at an annual rate of 3.6%, a steady, but moderate, deceleration for inflation.

Manufacturing prices rose by 2.3% over 12 months and accelerated slightly to an annualized pace of 2.6% over six months before slipping into low gear and rising at just a 1.6% annual rate over three months.

Japan’s CPI also decelerates on this sequential timeline, but with a hump in the middle after accelerating over six months. The U.S. PPI has that same profile. Japan’s core exhibits barebones deceleration; after rising at a 1.6% annual rate over 12 months, it settled into a gain of 1.5% annualized over both three months and six months. Producer prices in the EMU show ongoing declines with a lesser decline over six months, then, a greater pace of decline over three months, at -5.5%.

These comparisons reveal a rather broad-based trend for inflation to ease and weaken, especially over the recent three months.

A big part of inflation going weak over three months is oil prices. Oil prices (Brent) fell by 17.9% in April. They also fell at a 54.4% annual rate over three months, a 25.2% pace over six months, and at 28.2% over 12 months. Falling energy prices, especially if they fall long enough and sharply enough, get into the pricing system and have an impact beyond headline prices. We are seeing that on global basis, right now.

U.S. and EMU PPIs as well as Japan’s PPI and manufacturing prices all show positive correlations ranging from 0.37 to 0.53 with Brent prices with both series expressed as year-on-year percentage changes. Japanese CPI prices, however, show negative correlations between energy prices and headline core inflation rates, -0.15 to -0.37.

One month in the second quarter data show U.S. and PPIs revealing declines in prices along with Japan’s manufacturing price index. In this nascent quarter, Brent prices are edging lower at a 0.2% annualized rate. Still, Japan’s CPI is rising at a 1.4% annual rate and the core at a 1.7% annual rate as Japan’s CPI continues to resist the siren call of lower prices from the Brent index.

The National Australia Bank (NAB) index rose in May after three straight months of declining breaking a string of weakness. However, sequential changes still show declines on balance over 12 months, six months and three months. The level of the current index ranks only in its 32.6 percentile on data back to early 2003. The ranking of the three-month moving average is in its 17.6 percentile and for the 12-month moving average the ranking is in its 20th percentile. The index clearly is weak and it has been weak for a while; however, forward orders suggest that there may be some improvement in train, although that reading too remains with a weak, though improving, ranking.

Bad breadth... The indexes and the components of the Australian index show broad based weakness over three months, six months and 12 months. Over recent months proving characteristics have shifted to be slightly more positive. As in March, 68.8% of the categories showed improvement month-to-month, in April only 18.8% showed monthly improvement while in May over 60% showed improvement. However, the monthly data are in sharp contrast to the sequential data where three-month trends show only 18.8% of the categories improving, only 37.5% improving over six months, and compared to a year ago only 25% are improving. So, the Australian index definitely chronicles a lot more weakness in train despite the fact there may be some hints of improvement or, at least, less weakness, creeping in.

Weak, in a long historic context as well Among the 13 categories in the index, there are only six of them that have queue percentile standings above the 50% mark, a level that indicates they're above their historic medians; three of those firmer observations signal excessive price pressures coming from labor costs, purchase costs, and prices-outright. Interestingly, Australia continues to show exports and export sales as above median despite the hostile global environment with tariffs rising and trade wars threatening Australia also shows an above median reading for capacity utilization.

On balance, the report is not very reassuring although there is an increase in the overall index in May and there are slightly weaker decelerations in the three-month and 12-month moving averages, but those are more cases of less weakness in train than evidence of any outright improvement occurring. The NAB index continues to be a downbeat reading on the Australian business situation although the resilience in the export categories is something of note.

The economy watchers readings improved broadly, rising month-to-month across 70% of categories in the current index and across all categories in the future index. In sharp contrast, all the current and future readings are lower year-over-year and most of them are lower over six months- all are lower on a six-month average basis- as well as over three months compared to six months.

The month’s strength is widespread as one-month phenomenon, but it clearly comes amid a period when growth has been relentlessly weak. It is not clear that the one-month signal is strong enough to dominate the weak trend.

The levels of the readings are clearly and broadly weak. No future index has a ranking above the 50-percentile mark (above its median) and only one current reading -housing- is above its median, but that is only barely and only for a month and not an average basis.

The future indexes are relatively stronger for corporations, both manufacturing sector and in the nonmanufacturing sector, as well as for eating and drinking places. The services sector has the lowest ratio of the future reading ratio to the current reading.

Despite the ‘pop’ in the reading for this month, the report is hardly upbeat. Japan’s economy seems locked in a weak trend with the current month showing a sigh of life. The question is whether this signal is real and lasting or not. We can’t know that yet.

This week, we focus on critical minerals, which have moved into the spotlight following China’s recent restrictions on rare earth exports. The move triggered widespread supply chain disruptions and renewed attention to an issue that had long flown under the radar. A closer look reveals that just a handful of countries dominate global production—chief among them, China, as shown in chart 1. This concentration highlights the growing geopolitical and economic importance of mineral-rich nations in supporting key industries such as automotive, aerospace, and defence. The implications for national security are significant.

China’s influence goes well beyond raw material reserves. It has also positioned itself as a leading refiner of critical minerals such as copper and nickel—even though it is not the top producer of the raw ores (see chart 2). In the case of rare earths, China has become a key supplier to Western economies, including the United States and the Euro area (chart 3). Its recent export restrictions on rare earth elements (REE) are a direct response to ongoing trade actions and have already triggered disruptions across key industries. Ford in the US and Suzuki in Japan, for example, have reportedly paused production due to shortages of these inputs. Meanwhile, non-US automakers—particularly in Japan—face additional pressure from US auto tariffs. These have forced firms to slash export prices (chart 4), squeezing profit margins and weakening overall financial performance.

But not all signs point to prolonged disruption. There is a glimmer of hope. In Europe, negotiations with China suggest a possible easing of REE-related disruptions, although any concrete relief will likely depend on broader trade discussions. One likely sticking point is the surge in Chinese EV exports to Europe, which has saturated local markets and drawn import tariffs (chart 5). Meanwhile, US–China trade talks resume in London this week, with rare earths a central topic. Markets and policymakers alike are watching closely, hoping for signs of de-escalation. That said, the impact of these mutually imposed trade actions is already visible, as shown in chart 6. While negotiations continue, disruptions remain an active threat to supply chains, industrial output, and economic stability.

Global critical minerals production While headlines are often dominated by breakthroughs in high-end and essential technologies, what tends to be overlooked are the raw materials that make those innovations possible. These foundational inputs are known as critical minerals—so named because of their vital role in enabling advanced technologies and their often-fragile supply chains. Critical minerals include rare earth elements (REEs)—a group of 17 chemically similar elements essential to high-tech, clean energy, and defence applications. Also considered critical are minerals used in various battery chemistries, including those for electric vehicles (EVs) and associated infrastructure. These include nickel, cobalt, graphite, and copper. Additionally, elements like gallium and germanium are indispensable for semiconductors, fibre optics, and other high-tech systems.

In their raw form, the global production of critical minerals is highly concentrated. As shown in chart 1, only a handful of economies account for the majority of the world's production—and this pattern repeats across most critical minerals. Countries such as China, Russia, South Africa, and the Democratic Republic of the Congo consistently emerge as dominant producers across several of these materials. While production dominance alone may not always present a risk, it becomes strategically significant when geopolitical tensions interfere with trade flows. This issue has come into sharper focus as China’s central role in global mineral supply chains is increasingly scrutinized—especially in the wake of renewed US-China trade tensions following President Trump’s second term in office.