Economy in Brief: August 2023

Italy's inflation metrics in July showed a headline for the HICP rose 0.3% after falling 0.2% in June. The core rate was unchanged after rising 0.4% in June. The domestic CPI measure rose 0.2% in July after falling 0.1% in June. And the domestic CPI excluding food & energy rose 0.1% in July after rising 0.2% in June. These comparisons show that the HICP and the domestic inflation metrics for Italy had been behaving much the same in the last couple of months.

If we take a longer perspective, we find that we get pretty much the same readings and trends out of both the domestic CPI and the HICP gauges. For this discussion, I'm not going to repeat the HICP, and I will simply talk about the domestic CPI prices because they are the prices consistent with the detail in the table below.

Sequentially, Italy's CPI headline rises 6% over 12 months, eases to 1.9% pace over 6 months and then picks-up to a 3.1% annual rate over 3 months. The core measure gains 5.2% over 12 months, then slows to a 4.2% annual rate over 6 months and slides further to a 2.9% annual rate over 3 months. Italy's headline inflation rate appears to be cooling although it isn't doing it precisely sequentially; the core measure is showing a decline in inflation that is occurring sequentially.

Sequentially, the details on Italian inflation show broad deceleration occurring over 3 months and 6 months. Comparing 3-month inflation to its 6-month pace, only three categories show an accelerated pace; those are: rent & utilities, education, and restaurants & hotels. Over 6 months inflation is stronger than it is over 12 months in only three categories: alcohol & tobacco, transportation, and restaurants & hotels. Over 12 months compared to 12-months ago annual inflation is broadly hotter across categories; it's lower in only two categories: rent & utilities and transportation.

Calculating third quarter inflation by looking at the July increase over the quarter average in Q2, gives us a properly compounded annual rate of 2.0% for the CPI headline compared to 2.1% for the core CPI. The domestic inflation gauges are showing headline and core inflation running out of neck-to-neck pace that would be completely in-lined with the ECB's 2% target.

French trade trends show slowing year-over-year patterns for both exports and imports of goods excluding military equipment. While both flows are decelerating, it's imports where growth has turned negative. Imports show negative growth rates over 12 months, 6 months and 3 months. Exports are slowing year-over-year; however, in terms of shorter-term trends, exports show growth of 4.3% over 12 months, growth at an annual rate of 5.3% over 6 months, and growth accelerating to an 11.9% annual rate over 3 months. This is an accelerating short-term pattern that defies its longer-term year-over-year slowing trend.

For exports, the three-component flows depicted in the table {for 1) food, beverages & tobacco, 2) Transportation equipment, and 3) Other} all show positive trends. There are accelerations in progress from 12-months to 6-months to 3-months for all of them. From that standpoint, the strengthening of exports within the last year is a durable trend.

For imports, food, beverages & tobacco hint at some acceleration with very similar 6- and 12-month growth rates between 3- and 3½-percent that then accelerate to 9.6% over 3 months. Imports of transportation equipment, however, show waffling as they grow at a 12.4% annual rate over 12 months, slow to a 3.5% annual rate over 6 months, and then accelerate to a 10.4% annual rate over 3 months; that's a 3-month growth rate that's still below the 12-month growth rate and does not count as a tendency to accelerate. For ‘other’ imports, French trade results show declines on all horizons, but without any clear trend. Other import flows decline at a 13.7% annual rate over 12-months, that decline steps up to a -25.6% annual rate over 6 months, then it trims the speed of decline to -5.5% over 3 months. On balance, the ‘other’ category for French imports simply shows ongoing weakness but without a clear trend.

France’s current account in June swings into surplus after logging a deficit in May and rather persistent deficits in previous months. One year ago, imports outgained exports on a growth rate of 35.8% for imports compared to 20.7% for exports. However, over the last 12 months, that worm has turned, and imports are falling at a 9.2% annual rate, while exports have advanced at a 4.3% annual rate. The changes in these growth rates are what underline the swing in the current account from deficit territory into surplus territory. France’s trade balance continues to be in deficit in June. However, the deficit in June is only about 60% the size of the deficit averaged over the last 12 months.