Haver Analytics
Haver Analytics
United Kingdom
| Jul 12 2024

EMU Inflation: Headline Is contained; Core Is the Issue; Services Prices Are Nettlesome

EMU inflation ticked up by 0.1% in June after also rising by 0.1% in May – good stuff! The large countries show May changes ranging from 0.3% to -0.1%. May saw inflation rising in a range of 0% to 0.2% for the Big Four economies. That’s a nice, tight, low range.

Sequential inflation shows headline inflation running at 2.5% over 12 months and at 2.8% over six months, that decelerates to 1.7% over three months, more good news. But across the large economies in the EMU, inflation generally accelerates over three months to a 5.4% pace in Germany, 3.5% in France, and 3.0% in Italy. Only Spain shows a slower 1.7% pace. However, the year-on-year rates are more target-friendly. There, Spain has a high gain at 3.6%, Germany and France have 12-month rates that cluster around 2.5%, and Italy has a gain of 1%.

However, when we look at the core – excluding food & energy or just ex-energy - the results are much less target-friendly. Year-over-year France and Italy are close to target, with France at 1.9% and a 2.1% pace in Italy. German inflation is up at a 2.6% pace ex-energy while the core in Spain has inflation up by 3%. However, the tables are turned over three months where Germany and Spain show inflation as moderate at a 2.1% pace and France and Italy have core inflation up at a 2.6% to 2.8% pace. Still, these numbers are getting closer to the ‘two-percentish’ target the ECB current has.

It is a global phenomenon that goods sector inflation is tame and service sector inflation runs hot. Service sector inflation is below 2% in none of the countries in the table. We chronicle inflation slowing, however, and find that service sector inflation is largely moving in the right direction slowing across 65% over the month entries compared to 3 months and over 6 months compared to 6-months ago. Inflation is lower over 12 months compared to 12-months ago in 88% of the categories. So, the sequential profile is good, but the pace of inflation is still too high.

Spain, Finland, Norway, and Slovenia show steady deceleration in service sector inflation 12-months to 6-months to 3-months. All show inflation falling over those respective comparative horizons. Germany alone shows steady acceleration on that horizon.

However, we can also point-out that for services inflation for the EMU overall -and these are data through May only- service sector inflation is up by 4.1% and it is accelerating ever so slightly over three months and over six months. That is despite the breadth of deceleration on a country-by-country comparison. So, while the picture across EMU services prices seems good, the weighted results for the EMU itself are less so, showing service sector inflation too high and rising.

  • Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media.   Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

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