Finland's PPI Edges Lower

Inflation in the euro area is and continues to be excessive. Finland continues to follow along with the pack. Finland’s PPI is up by 28.9% over 12 months, it's up at a 36.4% annual rate over six months and then it has “cooled" to a 27.3% annualized pace over three months. Ranked among a group of 14 European countries - mostly European Monetary Union members- Finland's year-over-year inflation rate in June stand at 9th among this group of 14 members. At that time, Finland's year-over-year inflation rate was 31.6% compared to 35.9% for the European Monetary Union overall at that time; the highest inflation rate among this group of countries in Europe was Belgium where inflation was up 50.5%, followed by Spain at 43.4%, and then Italy at 42.0%. Finland’s PPI inflation ranks ninth among these 14 members in June; that means that Finland is one of the middling inflation countries in Europe (This comparison group consisted of Germany, France, Italy, Spain, Portugal, Austria, Denmark, Greece, Ireland, the Netherlands, Finland, Sweden, Belgium, and Luxembourg).

In July, Finland's producer price index fell by 1%; it had risen by 3.2% in June and by 4% in May.

The price of manufacturing goods fell by 2.1% in July after rising 3.2% in June and 3.1% in May.

Within the manufacturing sector, consumer durable goods prices rose by 0.5% in July, consumer nondurable goods prices rose by 2.1% and investment goods saw prices rise by 0.3%. These increases show continued acceleration. Consumer durable goods prices had fallen by 0.2% in June, consumer nondurable goods prices had risen by 1.3% in June, and investment goods prices in July rose at the same pace as in June of 0.3%. The relief of headline price pressure in Finland reflects intermediate and raw goods whose prices are reflecting weakness in oil and other raw materials.

Manufacturing price momentum Demand continues to pull other prices higher. For all of manufacturing, prices gained 28.2% over 12 months and accelerate to a 44.3% annual rate over six months but then price gains dropped back sharply to a 17.2% annual rate over three months.

This progression is echoed ever so slightly by consumer durable goods where prices rise by 11.4% over 12 months, accelerate to rise by 17.4% over six months and then prices barely cool their trend rising by a 16.6% annualized over three months.

Consumer nondurable goods prices are up by 13.3% over 12 months, they accelerate to a rise of 18.3% annualized over six months and accelerate further rising at a 23.7% pace over three months. Nondurables are still experiencing clear price acceleration.

Investment goods prices rise at a 10.4% annual rate over 12 months and 11.3% annual rate over six months, a small acceleration, and then decelerate to an 8.8% pace over three months.

These figures are a reminder that PPI prices are volatile, and they reflect goods that enter the economic system serving contrasting functions. Consumer durable and nondurable goods can have quite different trends even though they're both prices to consumers. Investment goods obviously serve the business community and will depend on the demand for expanding business and as such investment goods prices will be less connected to the pace of current economic activity. Business investment occurs on a different cycle than consumption and some business investment occurs with long lags and must be planned months or years in advance.

On the other hand, manufacturing also requires intermediate goods; these are semi-processed and are goods that tend to be closer to the price pressures faced by raw materials and tend to give the PPI most of its volatility.

If price inflation is going to break in Europe and in Finland, we are going to have to see some reduction in demand. The S&P Global PMI data released on a preliminary basis suggest that there is some cooling in the manufacturing and services sectors in Europe but it's still unclear how far that is going to progress. A new reading on consumer confidence in August in the euro area today shows a small rebound in confidence but only a minor increase from a record low.

War and other factors The war between Ukraine and Russia continues to press on. Finland has thrown its lot in with NATO giving up a long period of being neutral simply because Russia has made it so clear that if it decides on a border incursion it will move in a way that will make counteroffensives all but impossible so that Finland's security really relies upon throwing its lot in with a much bigger more protective umbrella - the sort that it could only get with NATO.

Economic and geopolitical conditions continue to swirl. Meanwhile, what has clearly escalated in the last few months has been the impact of the drought and it has hit central and southern Europe hard. There have been all kinds of unexpected effects on the provision of hydropower, river navigability, agriculture, and surprisingly, the output of nuclear power.

We continue to be in a period that offers unique challenges. And it will require a great deal of leadership and cohesion to put growth back in place. Finland fortunately is not at the center of most of these problems from the drought or the warzone, but on the periphery; that's probably one of the reasons that it decided to join NATO. But as a full member of the European Monetary Union, it continues to be economically plugged into that body and its business cycle seems to be fully in-sync with the issues and problems that are being experienced in Europe and addressed by the European Central Bank.