PPI Weakness Continues in EMU as Trends Become More Complex

Only 38% of the countries in the table show inflation accelerating in December. Inflation is much more broadly decelerating right now. In November, the accelerating/decelerating split was even.

Inflation has been moving lower, but its breadth across these 14 countries is above 50% showing more acceleration than deceleration, over three months and six months. The 3-month diffusion rate is 61.5%, the 6-month diffusion is a very high 92.3%. Still, year-on-yar inflation is decelerating on balance just about everywhere with a diffusion score of 7.7%. Inflation over 12 months accelerates compared to 12-months before that only in Luxembourg, hardly a regional bellwether.

Moreover, despite what the diffusion data tell us, over three months prices are falling by more where they are falling compared to the speed of increases where they are rising. The seven country-level prices that showed inflation increase over three months averaged gains of 5.9% compared to the seven categories with prices declining that show the average decline of 8.8%. The medians also show this with the median gain where there are price rises at 4.7% vs. the median decline of 5% where there are declines. These statistics juxtapose breadth vs. the intensity of a directional move.

Over six months not only is the tendency to accelerate broader (92% of respondents) but where prices are rising the average gain is 12.5% compared to an average decline of 9.3% where prices are falling. And when we shift to explore the median statistic where there are prices rising, the median price rise is 2.6% compared to the median drop being 2.1% where prices are dropping.

Year-on-year 13 of 14 PPI price indexes, are both decelerating compared to a year ago and falling compared to their year-on-year pace. So, inflation trends and tendencies are becoming more mixed, over shorter horizons. But in the aggregate, inflation rates are moving into a lower trajectory.

The table below looks at PPI trends across eleven member EMU countries grouping the data into consumer goods, capital goods, and intermediate goods categories. Among these countries, consumer goods inflation, at the producer level, is broadly decelerating from 3.2% over 12 months to 1.1% over six months and 1.3% over three months. But at the same time, diffusion is stepping-up to show more acceleration: from zero over 12 months, to 20% over six months, to 60% over three months. These data show that consumer prices at the producer level are slowing using the median for this group as the measuring stick. But a rising proportion of countries is showing inflation accelerating over 6-month and 3-month horizons.

Capital goods median prices slip from a pace of 2.5% over 12 months to 1.4% over six months to 0.3% over three months. And diffusion across countries on the pace of capital goods inflation shows the proportion of countries experiences accelerations rising from zero percent to 36.4% to 45.5%. Now, these proportions are rising but even over three months the 45.5% diffusion metric tells us that inflation is falling across more countries than it is rising. For capital goods, even though the proportion itself has risen, inflation is falling.

Intermediate goods prices, with the largest weight for raw materials and oil show the median intermediate price falling 4.9% over 12 months. That is reduced to a decline at an annualized pace of -1.3% but then that decline picks up to a pace of -1.8% over three months. Meanwhile, diffusion rises from zero percent over 12 months, to 80% over six months, to 70% over three months.

These data do a good job of revealing true price trends and not simply herding them into a singular signal. The signaling for prices is largely positive or ‘in the right direction.’ But there also clearly are cross currents to developing price trends.