EMU Member Inflation Still Mixed and High

French inflation trends alone among the largest four EMU economies is showing a break lower. Twelve-month inflation across the EMU is however quite mixed with Germany and Spain knocking on the door of 3% inflation while France is below 1% and Italy is below 2%.

And the divergences diverge further from there...

German inflation rises from 2.8% over 12 months to a 3.3% pace over six months to 4.1% over three months – a classic ongoing acceleration. Spain’s 12-month pace of 2.9% also steps up to 4.5% annualized over six months then explodes to 5.7% over three months. The accelerations are not good for central bank trying to hit a 2% inflation goal.

But the accelerations are counterbalanced by some moderation and even weakness. French inflation decelerates steadily, and prices actually decline over six months and three months. For Italy, the 12-month pace of 1.7%, steps back to 1.3% over six months, then rises back to a 3% annual rate over three months.

Even so, the best news is from Italy and Spain on the measure of core inflation. Each of them reports a steady menu of inflation rates over 12 months, six months, and three months below 2% and decelerating. This is notable because both Italy and Spain have badly behaving headline inflation trends.

However, energy prices are moving up, too, over the last three months as well as sequentially.

While inflation is still far from well-behaved, it may still be slowing. Signs of conforming Italian and Spanish core results are the most encouraging news. Still, over the past five years, inflation has averaged 3.2% in France and 4.4% in Germany, with Italy and Spain seeing inflation at the 3.7% to 3.8% mark. Core inflation over five years, however, has been lower and closer to the 2% goal at 2.5% in France, 2.8% in Italy, 3.2% in Spain, and 3.6% in Germany. Still, it’s not there but it is closer.

Still, the ECB has not brought inflation home to target; neither has the Fed, in the U.S. Meanwhile, unemployment rates in the European area are still near all-time best levels and generally low across member countries. The Fed and the ECB, have priorities slanted toward unemployment/employment and both have been content to take the top off inflation without hitting their targets. It is hard to see how with these shifted priorities markets are going to conclude that hitting the 2% inflation target is a real objective and priority. We will continue to watch and see how central banks approach policy in the months ahead.