Economy in Brief

Germany’s PPI in March fell by 0.7%; this is for the headline series excluding construction. The quasi-core PPI, excluding energy, rose by 0.2% in March. The headline series shows a number of months with the inflation rate negative, that is, with the price level falling, while the PPI excluding energy its flat in January with a 0.2% increase in February and in March. The stellar performance of the headline owes to weakness in oil prices.

Progressive inflation calculations on the PPI headline shows a decline of 0.2% over 12 months, a decline at a 0.9% annual rate over six months and a decline at a 4.9% annual rate over three months. These are progressively improving inflation dynamics; in fact, inflation that might be alarmingly weak under other circumstances. However, the PPI excluding energy is up by 1.5% over 12 months, up at a 1.2% annual rate over six months and up at a 1.4% annual rate over three months. These are clearly moderate increases in inflation and the quasi-core rate for the PPI has clearly stabilized.

In the first quarter, the German PPI inflation rate is falling at a 2.1% annual rate as the PPI excluding energy is rising at a 1.1% annual rate.

PPI components are not seasonally adjusted and are a little bit less interesting because of that. But the patterns for consumer goods, investment goods, and intermediate goods in the PPI show that all of them have stronger three-month annualized growth rates than 12-month growth rates, the opposite signal that we get from the headline which is seasonally adjusted.

Of course, monetary policy focuses much more on CPI prices than PPI prices; on that basis, the German CPI is up 2.2% year-over-year compared to a CPI ex-energy that's up at a 2.7% annual rate. Inflation presented on a CPI basis is much hotter than it is on a PPI basis and that's not surprising because the PPI is focused on the goods sector and production in Germany while the services sector has a much higher inflation rate and an inflation rate that tends to be more stubborn to change.

The table also chronicles the impact of Brent oil where prices fell by 3.5% in March after falling 3.8% in February. Over three months Brent is falling at a 4.6% annual rate which is a stronger decline than a 1.3% annual rate drop over six months, but year-over-year the Brent price is still down by 14.6%, and that larger, longer-lasting decline is probably still working its way through the pipeline into German prices.