Economy in Brief

European vehicle registrations fell by 6% in September, partly unwinding a drop of 9.7% logged in August. Registrations continued to be in a weak patch, falling at a 27% annual rate over three months and acceleration from a 2.9% rate of decline over six months. Over 12 months sales are lower, falling at a 7.7% annual rate. The problem is not just weakness in the month because the data on the three-month moving average show a decline and have fallen for several months in a row; based on three-month moving averages, the three-month 6-month and 12-month moving averages show declines at double-digit rates. Registrations are weak in Europe.

By country, registrations rose in the five countries that report sales: Germany, France, Italy, Spain, and the United Kingdom. Gain to the sharpest in Spain at 14.5% gains were weakest in the U.K. at 3%. Except for the U.K., all these reporting countries showed declines in registrations for two months in a row; the U.K. posted an increase in registrations in July.

Germany shows the weakest progression for registrations among the individual countries although on a year-over-year basis the weakest sales are in France where they fall 12.3%, in Italy where they fall 11%, compared to Germany where registrations year-over-year fall by only 6.7%. The U.K. has registrations up by 0.5% over 12 months while Spain has registrations up by 6.2%.

The progression of sales from 12-months to six-months to three-months shows growth rates in Germany escalating negatively from -6.7% over 12 months to a -20.2% pace over six months to a -56.9% annual rate over three months. This extreme weakness is challenged to some extent by Italy where there's an 11% drop over 12 months, a 3.5% drop, at an annual rate, over six months, and a three-month drop of 38.8% annualized. France shows consistent negative numbers across these horizons, falling by 12.3% over 12 months, a 19.1% annual rate drop over six months and a 14.2% annual rate drop over three months. Spain’s 6.2% year-over-year gain becomes a 17.6% annual rate drop over six months but then recovers to a 17.3% annual rate increase over three months. Spain's data are more volatile than they are weak. The U.K. is the only country to show increases on all horizons; it's showing accelerating increases with a gain of 0.5% over 12 months, progressing to a 2.6% annual rate rise over six months and elevating to an 18.5% annual rate over three months.

The United Kingdom is the only country that has a true positive story to tell. Spain has a story of some volatility with an increase over three months. The other countries have these isolated gains in September that are part of negative progressions. In Europe, conditions are weak; the auto sales data tell us they continue to be weak and there's no evidence that broadly tells us that things are getting better. In fact, the overview seems to be that conditions continue to be quite weak and might be getting worse. European car registration data today are not reassuring.

The German PPI in September fell by 0.5% as the ex-energy PII fell by 0.1%.

Year-on-year Germany’s PPI fell by 1.4% but the ex-energy PPI rose by 1.3% providing ‘some breathing space’ on the inflation front. The PPI, of course, is not targeted by the ECB nor are any national pricing results. However, Germany is the largest economy in the EMU and its results matter. What we see in the PPI is evidence of better price discipline overall- but overstated in the PPI headline.

Sequentially the German headline PPI gains 0.6% at an annual rate over six months and is flat over three months- compared to its 12-mont drop of 1.4%. The ex-energy PPI rises at a 1.9% annual rate over six months and runs at a 0.7% annual rate over three months. PPI prices are more closely linked to the manufacturing sector when global economic conditions have remained weak.

German sector results show mixed gains/losses from July to September monthly. Sector results taken sequentially show German consumer goods prices (at the PPI level) up by 1.5% over 12 months, gaining at a 1.8% pace over six months and rising at a 0.6% pace over three months. That’s a relatively subdued profile. Investment goods prices rise by 2% over 12 months, rise at a 1.2% annual rate over six months, and tick higher over three months at a 0.3% annual rate. Intermediate goods prices are up by only 0.5% over 12 months, rise at a 1.0% annual rate over six months, and fall at a 1.0% annual rate over three months.

The table shows German CPI prices for comparison. They are closer to the HICP that the ECB targets EMU-wide than the PPI. The profile of headline CPI prices in Germany runs under the EMU 2% target on all three sequential periods. But the CPI excluding energy is hot, running at a pace North of 2% over 12 months, 6 months and 3 months at an annual rate and showing its hottest pace over 3 months.

Japan’s core CPI – the CPI excluding fresh food and energy- rose by 0.2% in September as the headline rate fell by 0.4% - both month-to-month. The measure of all items excluding food and energy rose by 0.1%; prices excluding only fresh food fell by 0.3%.

Year-on-year inflation trends Year-on-year inflation was excessive for the headline at 2.4%, but that was a down-draft from a year-on-year pace of 3.1% from a month-ago. Core inflation settled to target on a 12-month basis as the pace dropped to 2.0% from 2.1% a month ago. Prices less fresh food fell to a 2.4% pace over 12 months from a 2.8% pace a month ago. Prices excluding all food and energy logged a 12-month gain of 1.7%, the same as a month ago. Not surprisingly, different measures show different trends. The headline is a bit hot but the preferred core measure, excluding only fresh food and energy, shows inflation dead-on target. Still, that is not the end of the story.

Inflation risk rises in the core The X-fresh food and energy core (xFFE) is spot-on over 12 months, but that may be a passing fancy. Sequential growth rates for this measure show the xFFE core running at a 2.3% clip over six months and by 3.0% at an annual rate over three months. Inflation may only be transitorily at its 2% target as it builds a head of steam for stronger expansion that, if sustained, would push the core beyond 2%.