Introducing

Robert Brusca

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.

Publications by Robert Brusca

Europe| Mar 31 2025
Some Hopeful Signs in European Inflation Trends; But Are the Signals Good Enough Given the Circumstances?
The Circumstances- The chart of the three largest EMU economies and their HICP inflation rates shows clearly that year-over-year trends and inflation in France have broken lower while Italy, that has long had the lowest inflation rate in the monetary union among the four largest economies, is on a mild uptrend. Germany has made a very small re-set as inflation has broken lower in the short-run, but German inflation year-on-year actually would still appear to be in a slight uptrend.

There is good news- Despite these broader views, there is some excitement over this month’s inflation statistics from Germany. German inflation has fallen by 0.2% in March after rising by only 0.1% in February and in January. The annual rate change for inflation in Germany over three months is -0.3% which compares to France at -2.1%. These are clearly good inflation developments for the two largest economies in the monetary union; however, Italian inflation over this period is at a 5.7% annual rate while Spain's inflation is at a 1.2% annual rate. Among the four largest monetary union economies, three of them have short-term inflation rates well inside of the ECB's targeted pace for the union as a whole; however, the picture is far from completely clear.

There are reasons to be cautions in digesting the ‘good news’ - Italy shows a clear acceleration for inflation from 2.2% over 12 months to 2.8% over 6 months to a pace of 5.7% over 3 months; that acceleration is uncomfortable. For Germany, the year-over-year inflation is in excess of the EMU-wide target at 2.5%, and still excessive at 2.6%, and accelerating slightly over six months, but then it breaks sharply lower over 3 months to that -0.3% pace. France has relatively clean results with a one way read on inflation. Over all horizons, inflation’s pace is below the 2% mark and decelerating to boot running at a 0.9% annual rate over 12 months, followed with a 0.2% annual rate over 6 months, and then clocking -2.1% at an annual rate over 3 months. Spain is a good example of the mixed situation for European inflation as over 12 months it's 2.3% pace is slightly above the 2% that the ECB seeks for its EMU-wide target; over six months Spanish inflation steps up to a 3.4% annual rate, clearly excessive on everyone's radar, but not really worrisome, then, over 3 months, Spanish inflation settles down to only 1.2% at an annual rate- highly copacetic.

The inflation overview: numbers and their trends- Summing up what we have here are three countries with 12-month inflation above the 2% pace. France is below it at 0.9%. We also have three countries with inflation above the 2% pace over 6 months with France as the exception again at only 0.2% over 6 months. In addition to that, two of the three countries show acceleration over 12 months compared to 12-months ago, and over 6 months compared to the 12-month pace, inflation accelerates in three of these four countries. It's possible to look at these data and find good news; however, it's also possible to look at these data and find that the news does not appear to be quite so good.

Beyond the headlines- Turning to the core inflation rates for Italy and Spain, we see that both of the core rates for those two countries are at 2% over 12 months within the ECB's desired parameters and a green light for any pending rate cut decisions. Italian core inflation runs at 1.9% over 6 months with Spanish core inflation at 1.7% over 6 months also acceptable paces to the ECB. Over 3 months the Italian core picks up to 2.4% annual rate while the Spanish score remains at 1.4% and as part of a decelerating process for Spanish core inflation from 12-months to 6-months to 3-months.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 28 2025
EU Indexes Show Slight Erosion
The EU commission's overall reading for the European Monetary Area unexpectedly eroded, dropping to 95.2 in March from 96.3 in February, leaving it also below its January 2025 level but above its December 2024 level. It may simply be too soon for this survey to reflect any of the changes going on in Europe. But very clearly a ramp up in military spending is planned and economic conditions in the monetary union and beyond are about to receive a significant boost. While that development might be simply too new to have gotten into the indexes as of March, it is still in train so curb your disappointment.

EMU in March by Sector March readings for the monetary union show the industrial sector unchanged at -11 from February but showing improvement compared to both the December and January readings. Consumer confidence slipped in March to -14.5 from -13.6 in February and it's below its January and December levels as well. Retailing slipped to -7 in March from -5 in February and it also is below its string of readings since December of last year. Construction spending at -3 posted the same reading it logged in February and in January and those were slight improvements from December. The services reading in March slipped to +2 from +5 in February and it is also below its reading of +6 in January.

Country Readings Country level data show readings for 18 of the monetary union members; of these 18, only 6 have percentile standings for overall indexes that are above their median (a ranking of 50%) calculated on data back to 1990. Only one of the four largest countries has a reading above its median and that's Spain at a standing at 51.4% Other large countries show much weaker readings with Germany at a 16-percentile standing, Italy at a 37-percentile standing, and France at a 37.5 percentile standing. Month-to-month changes show deterioration in nine of the 18 reporting countries. This compares to a deterioration in eight in February and compares to January when six weakened relative to December. It is a worsening trend but based on developments in military spending to shore up NATO. Europe supported defense systems must carry more of the load. This will imply stimulus across the board coming for the monetary union.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 27 2025
Euro Vehicle Sales Falter and Flatten in February
European vehicle registrations falter and flatten in February. The month-to-month changes for a decline of 0.9% in February; year-over-year vehicle registration growth is -3.9%. The chart makes it clear that country-by-country the growth rates have been closing in on fairly unchanged levels of activity with a slight bias to contraction.

Country-by-country year-over-year sales results are strongest for Spain with the 10.4% increase, France with the 1.7% increase, the United Kingdom with a 2.4% drop, Italy with a drop of 6.2%, and Germany with a drop of 7.1%. These numbers translate into a 3.9% decline year-over-year for the total. If we look at smoothed data updated from three-month moving averages, there's a decline of 1.4% year-over-year, just to get a less volatile read.

Despite the year-over-year declines that are more prevalent than increases, the sequential trends show vehicle registrations trending more toward acceleration. There is clear acceleration registered in Italy and the United Kingdom. After that, there's certainly a very strong hint of very strong acceleration in both Spain and France. I say that because the year-over-year gain for Spain is 10.4%, while the three-month gain goes up to 32.1% at an annual rate (!); however, that is a step-down from the six-month growth rate of 47.6% at an annual rate so it's not exactly a clear accelerating trend but certainly three- and six-month growth rates are far in excess of the 12-month growth rate. We see the same thing happening in France with a 1.7% year-over-year growth rate compared to a 23.1% annual rate over three months, but that three-month rate is a step-down from the six-month pace of 27.7%. Because of that, I can't classify those two countries as accelerating but clearly something very positive is a foot.

If we turn to look at ranked data, we find the ranking of year-on-year sales growth is at 20.2% overall growth rates since 1995 – weak and unimpressive. Country rankings range from low 7% rank for Germany to a high of a 46-percentiel standing in the U.K. All rankings are below 50%, below their respective historic medians. We can also rank the same data in terms of the pace of unit sales. In Europe, the pace of unit sales (units sold per month or per month at an annual rate) there is a 33-percentile standing on all unit sales data since 1995. The auto sector pulled back after the Great Recession, it recovered into Covid, then suffered further downward pressure after the invasion of Ukraine by Russia. Since then, there has been a much more modest recovery leaving the pace of unit sales closer to the lows reached after the Great Recession than to its pre-Great Recession mark. Europe’s auto sector may be recovering but it is doing so slowly and sporadically, and it has a long way to get back to trend.
by:Robert Brusca
|in:Economy in Brief
France| Mar 26 2025
French Household Confidence
In March, household confidence in France sank after rising in February. The index now resides below its level in January. Since early in this new millennium, confidence resides at its 36.2 percentile, a standing that is just above the lower one-third of its queue of outcomes over that period. The median result lies at a ranking of 50%. The mean level for confidence over this period is 96.5. Living standards for the next 12 months are weaker at -50 compared to -47 in February. The past standard has a standing in its 32nd percentile while the period ahead registers an expectation with a rank standing in its 21.9 percentile, just above its lower one-fifth mark.

In March, the evaluation of past living standards over the past 12 months improved very slightly to -69 from -70.

Among the good news in this survey is the drop in unemployment expectations in March to 46 from 54. Still, unemployment expectations rank at their 63.1 percentile which is above their median and mean - the mean for unemployment expectations is lower at 33. So, the good news is that unemployment expectations have fallen, but the bad news is that they are still elevated.

There is good news on price developments. Expectations for a drop increased in the March reading in the past 12 months; they increased to -7 from -5. The March reading has a 43.9 percentile standing, below its mean and its median. Looking at the next 12 months, inflation expectations are a touch less optimistic at -41 in March compared to -43 in February. The ranking for 12-months ahead has a very low standing at its 22.6 percentile, marking the small giveback in expectations in March as inconsequential.

The environment for saving and being able to save are both little-changed month-to-month and both also have extremely high standings in the high 90th percentile.

The favorability of the environment for making major purchases improve slightly in March continuing a modest trend higher. Still, spending favorability ranks as weak in its lower 26.2 percentile.

The financial environment was little-changed in its evaluation of the past 12 months; but looking ahead, a sharp deterioration to -11 was posted for the next 12 months compared to a reading of -4 in February. The financial situation over the past 12 months has an evaluation with a standing in its 60.1 percentile, above its historic median, but switching to an outlook 12-month ahead yields a rank standing in the 44.5 percentile just below its median and one point below its mean.

Since Covid and Since the Russian Invasion The final two columns show changes in survey responses since before Covid stuck and since the Russian invasion of Ukraine. We do this in two-steps looking at the change from levels just before Covid struck to the threshold of the invasion, then from the invasion to the up-to-date readings. From Covid, things were improving to early 2022; then since the invasion, consumer conditions are worse by 4 points. Expected living standards rose 8.5 points into the Covid recovery but since the invasion conditions are 11.9 points lower. Unemployment expectations were higher by 14.2 points in early 2022 but after the invasion they rose sharply by 62 points! Post Covid eventually inflation expectations were reduced. They were lower by 9.7 points in early 2022 but since the invasion they are lower by 30.9 points. Post Covid the spending environment was higher by 11.1 points but since the invasion that response has reversed by 9.9 points.

On the plus side of things, financial conditions ahead are 2.0 points higher since the invasion, previously they were 3.5 points higher in early 2022 in the pre-invasion Covid recovery.

The bottom line to all this is that there has been a digging out after the Russian invasion but that post Covid recovery process has now seemingly run out of steam. The forward-looking inflation expectations are still on a slow improving path but that may have stalled. In any event, the turn to more military spending in Europe could make a marked change in Europe’s inflation environment and could alter future surveys considerably.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 25 2025
Germany’s IFO Shows Recovery
Germany's all sector climate index improved in March to -19.8 from -24 in February. Still, the index only has a 13.9 percentile standing on data back to the early 1990s. The all-sector climate index, the current index and expectations all improve month-to-month with the scope of improvement for the all-sector climate and expectations indexes greater only about 10% of the time. These are sharp month-to-month improvements. However, the levels of the indexes are so weak that the rankings continue to scrape very low levels. Overall conditions in Germany have hardly changed despite the solid month-to-month improvement concentrated in climate and expectations.

Climate The climate measure shows improvements for the all-sector reading, manufacturing, construction wholesaling, retailing, and services. The highest percentile standing for any sector is for construction at a below-median 41.5 percentile standing. The next highest standing is for retailing at a 24.5 percentile standing, the weakest reading is a standing of 10.3% in manufacturing, and the services sector is at a 13.2 percentile standing, not too much stronger than that.

Transition-Ho! While climate conditions are still in difficult straits, we find that current conditions standings are largely worse than for climate standings; expectations show uneven comparisons. We know there are big changes coming to Europe, particularly for Germany, because of the new shift to more defense spending. This, obviously, will create improvements in the defense sector but should also have broader multiplier effects for the economy, for the manufacturing sector, but also for the economy in general. We also expect these changes to spread across Europe with similar increases in military spending to be introduced in other countries, as the United States is looking for Europe to carry more of its own security burden. We should continue to see improvements in expectations and in climate in the coming months and those improvements should be translated gradually into improved current conditions as well.

Current conditions-Manufacturing and Construction lead Current conditions in the index show improvement across all sectors with minuscule improvements being posted in wholesaling and in retailing in March. The percentile standing for the current indexes in March show the strongest reading in construction; it is the only sector above its median: above its 50th percentile at 61.6%, with retailing close to its 50th percentile mark at 48.2%. The weakest readings are for manufacturing at an 11.9 percentile standing and then services at a 16.9 percentile standing. But manufacturing has the largest month-to-month gain. The overall standing for current conditions is lower still at its 10.7 percentile standing, indicating a confluence of weakness across sectors, a result that has the overall index at a weaker standing than any for individual sector.

Expectations – Manufacturing surges Expectations show broad improvement and for the most part fairly significant improvement across sectors. The headline improvement shows expectations at -16.1 in March compared to -20.5 in February, which leaves the index at a 16.9 percentile standing overall. Expectation standings are weak, however, with the strongest expectation standing in manufacturing at 21.1%, the second strongest for wholesaling at 19.8%; services rank third with the standing of 15.1%. Construction, the sector that has the strongest current and climate standings, has the weakest expectation-standing at the 8.2 percentile mark.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 24 2025
S&P Flash PMIs-Services Worse, Manufacturing Better
S&P flash PMI statistics for March show very little change in the composite which has been plugging along at 51.4 in January, 51.4 in February and now 51.5 in March. These are readings from unweighted averages from the eight reporting countries and the European Monetary Union. The manufacturing composite is crawling its way higher from 49.1 in January to 49.5 in February to 49.9 in March, putting manufacturing nearly to a breakeven reading after a long period of showing sector contraction. Service sector readings monthly log 52.0 in January, 51.9 in February and 51.6 in March, a steady but very minor trend to erosion.

The sequential growth rates on the quarterly average readings that exclude March are performed only on hard data. They show that the composite reading has also been very stable at 51.6 for the 12-month average, 51.3 over 6 months and 51.3 over the most recent hard 3 months’ worth of data. Manufacturing has also been stagnant with a reading of 48.4 for the 12-month average, 48.4 for the six-month average and 48.6 for the three-month average for the period ended in February. Services show the same minor slippage we see in the monthly data from 52.5 over 12 months to 52.2 over 6 months, to 52.0 over the most recent three-months of hard data. These trends show minor improvement in manufacturing and minor deterioration in services. Manufacturing continues to show minor contraction as services continue to show minor expansion. Neither sector performs particularly well and neither sector has any particularly notable trend to it. The diffusion data across countries show a great deal of variation.
by:Robert Brusca
|in:Economy in Brief
France| Mar 21 2025
INSEE Manufacturing and Services Steady-to-Weaker
The INSEE industry climate index settled lower in March at 95.9, down from 97.0 in February. The index is lower than its year-ago value of 102.1 and since 2001 it has been this low or lower only 7.5% of the time. Despite the sense of some stability in manufacturing in the tabular data for the last year, the chart (of data since 2014) and the table’s own presentation of the queue standing reveals manufacturing to be at a relative weak standing in March.

Manufacturing production expectations have a 34.4 percentile standing but did improve slightly from the February reading of -14.8. The recent trend of production weakens on the month to a lower quartile standing at its 23.7 percentile. The personal likely trend, which is the reading for each respondent gives to the prospects for his own industry, ticked higher in March to a 40.5 percentile standing. That is better than the percentile for industry over all but still below the level that marks the historic median – a standing at the 50th percentile.

Orders and demand as well as foreign orders and demand each weakened. They each have standing at or below their respective 20th percentile around the lower one-fifth of all historic readings. In addition, the March reading for orders and demand are substantially weaker than they were a year ago and the slippage has been worse for foreign orders.

In contrast, inventory level show few changes and are similar to their year-ago readings and close to their historic median.

Prices have moved to lower readings in recent months. However, price trends and level readings are higher than they were a year ago. In terms of rankings, the own likely price trend is at a 61.5 percentile standing, above its historic median while the manufacturing price level has a relatively weak 36.1 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 20 2025
German PPI Inflation Settles Down
German PPI inflation fell by 0.2% in February for the headline series, ‘PPI excluding construction.’ The drop marks a string of declines in German headline PPI inflation. For the PPI excluding energy, inflation rose by 0.1% in February after a 0.1% rise in January and no change in December. This is a clear winning streak for German inflation trends at the producer level.

Inflation results from 12-months to 6-months to 3-months show German headline PPI inflation decelerating steadily and somewhat aggressively from an increase of 0.8% over 12 months to a -0.6% annual rate over six months to a -2.5% annual rate over three months. For the PPI excluding energy, German inflation is up 1.5% over 12 months, which eases to a 0.5% annual rate over six months, and then stabilizes but accelerates slightly at a 0.7% annual rate over three months. The performance and behavior of headline inflation obviously shows a great deal more weakness than in the PPI excluding energy. But both are well-behaved.

Oil price trends Brent oil prices declined by 10% over the previous year and have declined by 8% over the most recent 12 months. Over six months they're falling at a 9% annual rate, but then over the last three months they've been increasing at a 9.5% annual rate. Monthly Brent oil prices fell slightly in December, fell by 3.8% in February, but rose by 6.5% in between, during the month of January. The oscillation in oil prices makes it just a little bit difficult to nail down the impact of oil prices on the inflation numbers, but generally oil has been weak and there has only been a slight amount of pressure from oil recently compared to past trends.

German PPI component trends German PPI components are not seasonally adjusted; they generally show inflation is relatively stable. For consumer prices, the 12-month, 6-month and 3-month pace is just under 3%. For investment goods, inflation is accelerating slightly from 2% over 12 months to a 4.2% annual rate over three months. Intermediate goods display growth rates for inflation that fluctuate between -0.9% at an annual rate over six months to +1.4% at an annual rate over three months. The PPI trends compare to CPI trends that are really quite flat with the headline CPI between 2.5 and 2.2% at an annual rate across horizons and the CPI excluding energy at a pace of expansion between 2.4% and 2.7%.

All-in-all German inflation appears to be contained and at a relatively low level. This should be a report that the European Central Bank is pleased with.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 19 2025
EMU Inflation Pace Is Lower Y/Y; Still Too High- and Not Clearly Falling or Prone to Fall
EMU inflation overview By category, inflation is not accelerating over shortening periods. The year-over-year chart shows inflation in the EMU is lower and less prone to rise over 12 months than other major monetary centers. But, break it down… to 12-months vs. 6-months…to 6-months vs. 12-months…to 3-months vs. 6-months and EMU inflation goes from accelerating over 12 months (compared to 12-months ago) to accelerating in 38% of categories over 6 months (compared to their 12-month pace) to accelerating in 53.8% of categories over 3 months (compared to their pace over 6-months). The inflation worm is beginning to turn within the EMU and within the one-year time horizon. And we know that what is next is more growth, more price pressure, and more military spending in the EMU because of change in upcoming fiscal policy. So, it is becoming clear that the ECB is not going to get back to its 2% target unless or until it is ready to raise rates again. And NO ONE is saying that yet.

Core trends in EMU- Core inflation shows prices better-behaved than headline inflation and across the four largest EMU nations. Inflation is excessive on core inflation year-on-year in Germany and Spain; over 6 months, in Germany and over 3 months, in both Germany and France. Inflation is accelerating on the core measure for German inflation over 6 months and for French and Spanish inflation over 3 months.

Headline inflation- By comparisons, headline inflation is flaring more but it is less stable, more mercurial, so these trends may not prove to be lasting. Still, headline inflation accelerates over 3 months compared to 6 months in three of four countries and is excessive (above 2%) in three of four of the largest EMU nations. Over 6 months, two of them are showing acceleration and excess inflation at the same time.

Commodity level trends across EMU- By commodity category or economic grouping, inflation is prone to accelerate as we note in the first paragraph. Contrarily, the monthly data show decelerating pressures while the sequential 12-, 6-, and 3-month data show a tendency to more acceleration. On monthly data, inflation accelerates in 12 categories in December, in 6 categories in January and in 4 categories in February.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 18 2025
ZEW Experts See German Outlook JUMP and U.S. Outlook TANK!
WOW! What a chart!! Enter the Post-War age of the rediscovery of geopolitics Press reports this morning are all over the new ZEW release that shows that macroeconomic expectations for Germany have jumped sharply to a level of 51.6 in March from 26.0 in February. This, of course, is being heralded as a result of the great German turnaround and Germany discovering that it really needs to provide for its own security rather than to spend its money paying down its debt and letting the U.S. provide its protective defense umbrella. A real epiphany… After years of turning down U.S. entreaties to be more careful with its security that started with Barack Obama and went on to Donald Trump, Germany refused to spend more money in NATO and brushed off Trump's concerns about being linked to Russia through a pipeline. It basically did just about whatever it could to cause Russia to think that the Germans no longer had any interest in NATO which played a part and fueling Russian boldness and its attack of Ukraine. Russia thought Germany would leave NATO to preserve its economic ties to Russia! Wrong. But a war’s start often is based on poor assumptions or hidden factors. Had Germany wanted to spend the least it could on the military, it should have listened to Barack and to Trump. However, it didn't, and so now we have this huge military buildup that is really pushing macroeconomic expectations ahead in Germany. While we can argue about military spending and whether it's good or bad, right now, it's providing the stimulus that Germany and Europe need to jumpstart their economy out of this long period of weakness that stemmed from COVID, its aftermath, and from of the Ukraine invasion by Russia.

Dramatic shifts However, the part of this new survey that is not getting as much attention is that U.S. macroeconomic expectations that were +1.3 in February have dropped to -48.7 in March, a massive drop in one month; the ranking or queue standing of the U.S. macro-expectations in March is at a 4.4 percentile mark which means that since the early 1990s that has been weaker than this only 4% of the time. In contrast, the jump in German expectations have boosted German expectations up to the 75th percentile of their ranking over the same period. The economic situation in March, which is less malleable because it's tethered to what's happening ‘on the ground’ says the euro area is roughly unchanged at a ratio of -45.2. Germany’s situation is also roughly unchanged, slightly improved, at a level of -87.6; but the U.S. current index drops sharply to +6.7 in March from +42.6 in February, down to a 37-percentile standing. I frankly wonder if it's possible for current conditions - actual current conditions - apart from expectations, to deteriorate that sharply in one month but that's the result we have here to report.

Stunning developments On dating back to early 1992, U.S. current conditions have fallen (experienced a deterioration) month-to-month more than they have in March 2025 on only four other occasions and those were generally in the middle of either COVID or a sharp stock market sell off or some clear precipitating event. In this case, I suppose we would say it's the fear of Donald Trump, his geopolitical stance, his government overhaul, and tariffs are driving these changes. Macroeconomic expectations in the United States have deteriorated month-to-month more than this only once, and in Germany macroeconomic expectations have improved more sharply than they have in March only five other occasions in the past. This report from ZEW is a watershed report; it's fair to say we've never seen anything like it in the past because not only are these statistically highly unusual moves, but it is unprecedented to see the U.S. and the German macroeconomic expectations move so sharply in one month in completely different directions. This result is simply stunning.

The nail in coffin of deflation In the wake of these findings, it's not surprising to see that inflation expectations have jumped in the euro area from -18.6 in February to +6 in March. In Germany, they've jumped from -17.9 in February to +7.9 in March while in the U.S. they have jumped from 35.3 to 52.3. The queue standings now for inflation expectations are in the 38.3 percentile for the euro area (since the early 1990s), in the 39.5 percentile for Germany, and in the 71.5 percentile for the U.S. Quite apparently the period where we will worry about deflation and the zero bound, and all of those things is over, and we are back to worrying about inflation...hello darkness my old friend...
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 17 2025
Italian Inflation Slows Down and Speeds Up; Headline Stronger; Core Weaker on Trend
Italian inflation shows the headline HICP measure at 0.2%, rising in February slower than the January gain of 0.5%. Core inflation was flat in February after rising 0.3% in January. The Italian domestic headline CPI measure also rose 0.2% in February, a little weaker than the 0.3% gain in January. The core to the domestic CPI was flat in February compared with 0.1% rise in January. Month-to-month inflation slowed. The January-February data generally show inflation contained except for uncomfortable readings for the headlines in January for both the HICP measure and the domestic CPI measure.

Sequential trends Stepping back from monthly data, the sequential HICP measures show inflation moving back up again; there's a 1.7% gain over 12 months that dips to 1.3% at an annual rate over six months then accelerates to a 3% annual rate over three months. In contrast, the HICP core decelerates steadily, rising 1.7% over 12 months, at a 1.4% pace over six months, and settling down to a 1% annual rate over three months. The domestic CPI basically mimics those trends, but the headline CPI is up 1.6% over 12 months, up at a 1.2% at an annual rate over six months and then climbing at a 2.3% annual rate over three months. The core domestic CPI is up 1.7% over 12 months, up at a 1.2% pace over six months and up at only a 0.7% annual rate over three months. Both inflation surveys show uneven inflation in the headlines with the tendency to accelerate against clear decelerating trends for the core. However, the 12-month measures for inflation in Italy on headline and core for either survey are all below the 2% pace sought by the ECB for the target for the overall Monetary Union. Inflation in Italy is contained in the range desired by the European Central Bank

Inflation quarter-to-date The trends for the HICP and for the domestic inflation gauge reveal a headline series that shows more inflation than the core series and for each of them. In the quarter-to-date, annualized headline inflation is above 2%. It’s at 3.2% on the HICP measure and at 2.5% for the domestic CPI measure. However, in each case, the core measures are well below what the ECB seeks for an inflation target with the HICP core at a 1.5% annual rate and with the domestic core CPI pace at 1% at an annual rate. Having the better news on the core is good since that measure trends to be more stable while the headline is especially kicked around by energy prices.

Inflation breadth (diffusion) Generally speaking, inflation in Italy has been under control for some time. Diffusion measures show that inflation is not accelerating in more categories than it's decelerating over 12 months, six months, or three-months. Over 12 months, the diffusion gauge is at 41.7%, indicating that only about 41% of the categories are showing acceleration, the same as over three months, which means that inflation is more broadly decelerating than accelerating.

Monthly inflation diffusion by category However, in terms of categories we find that looking at monthly data, inflation is steadily accelerating for (1) alcohol & tobacco, (2) clothing & footwear, (3) rent & utilities, (4) housing & furniture, and (5) restaurants & hotels. This is a significant number of categories looking at the price changes monthly for December, January, and February. On the same monthly timeline, prices are steadily decelerating for (1) transportation equipment and (2) recreation & culture while (3) education logs zero inflation in each of the most recent three months!

Sequential price trends and extreme price changes Looking at inflation categories over 12 months to 6 months to 3 months, the picture shifts. On this timeline, (1) alcohol & tobacco shows acceleration, (2) clothing & footwear prices show acceleration, and (3) health care tends to acceleration. Prices show decelerating trends sequentially for (1) housing & furniture, (2) communications, and (3) recreation & culture. In terms of extreme price changes over 12 months, communications prices fall 4.9% while rent & utilities, and restaurant & hotel prices each rise by 3% or more. Over three months prices fall by 6.4% annualized for communications; they also fall for housing & furniture, and recreation & culture but fall mildly. Prices rise by 17.9% annualized for rent & utilities and by 5.2% for alcohol & tobacco over three months.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 13 2025
EMU IP: A Long Dig-out Is Underway
Industrial output European monetary union rose 0.8% in January; this is for the headline series that excludes construction. Manufacturing output rose by 1% in January as well.

Sequential calculations show that overall manufacturing fell by 0.1% over 12 months, rose at a 0.8% annual rate over six months, and is now rising at a 2.1% annual rate over three months and accelerating pattern. Similarly, manufacturing output rises by 0.1% over 12 months, gains 0.2% at an annual rate over six months, and expands at a 2.1% annual rate over three months Like the headline series, manufacturing also shows acceleration in output is underway. The effect is present but not powerful.

Sectors In January, the gain in overall output was mostly on the back of intermediate goods where output rose 1.6%, capital goods output also rose by 0.5%, consumer goods output fell by 2.8%. In the month, however, the strength of intermediate goods and capital goods was enough to carry the day to an overall output expansion. Sequentially, looking at growth rates over 12 months, six months, and three months, we see a steady acceleration for overall consumer goods output, for the output of consumer durable goods, and generally for the output of consumer nondurables (with a very small exception). Intermediate goods output also shows steady acceleration. The only real exception is for capital goods, where output falls by 2.1% over 12 months, improves to a decline of only 1% over six months but then lapses into a 4.7% annual rate decline over three months. Manufacturing, except for capital goods output, is showing acceleration that is broad-based.

Quarter-to-date In the quarter to date, overall output is growing at a 3.6% annual rate. Manufacturing output is growing at a 3.3% annual rate. Output growth is positive in all the manufacturing sectors and subsectors except for capital goods where output is falling quarter-to-date at a substantial 4.1% annual rate. All of these, of course, are nascent figures because we are only one-month into the quarter. These growth rates are calculated by taking the compounded annual rate for January over the centered fourth quarter average for all of output, sector-by-sector.

More broadly, the queue percentile standings show that year-over-year output growth is below its median. The queue percentile standing data show broad-based weakness in the industrial sector. Overall output has a 32.6 percentile standing; manufacturing has a 26.6 percentile standing. Across sectors, consumer goods output is still strong with an 88.5 percentile standing- that's the result of strength in consumer nondurables that have a 90.4 percentile standing. However, consumer goods output is still held back by a consumer durable goods output standing, at a 38.1 percentile. Intermediate goods have a 32.1 percentile standing, while capital goods, which is an important sector in the European Monetary Union, have only a 15.6 percentile standing, extremely weak.

Across countries Reviewing the data across countries, Among the 11 reporting EMU countries, five of them show IP growth above its historic median rate since 2006. Austria, Germany, and the Netherlands show output on an accelerating path, while France, Spain, Malta, and Ireland show decelerations in train. Viewed separately rather than as part of a sequence, output is nonetheless accelerating in 50% of the reporters over 12 months, in 41.7% over six months and among 54.5% over three months. There is progress but it is uneven and still slow. However, with the new tilt to more military spending – something that is already agreed to in Germany - we can expect output progress will step up more readily in the months ahead.
by:Robert Brusca
|in:Economy in Brief