Economy in Brief

Industrial production in the European Monetary Union (EMU) was flat in October with manufacturing output up by only 0.1% month-to-month. Consumer goods output fell by 2.2% month-to-month with declines in durable goods and nondurable goods production immediate goods output was flat in October with capital goods output rising by 1.7% All in all, it was a weak month for most of the sectors and even though capital goods output revived it did so after a sharp decline in September

Sequential growth Sequential growth rates show total output in the monetary union falling 1.3% over 12-months, falling at a more elevated 3.4% annual rate over six-months and then trimming the pace of decline to -0.8% at an annual rate over three-months. Manufacturing trends with some small differences follow that same pattern.

Sector performance The sectors for industrial output show consumer goods output fairly steady, rising at about a 2.5% pace over 6-months and 12-months but then declining at a 2.6% annual rate over three-months. Consumer durable goods output declines over six-months and 12-months but shows improvement while declining and then posts an increase at a 3.8% annual rate over three-months. Consumer nondurable goods take the opposite pattern, rising at a 3.5% annual rate over 12-months and over six-months and then falling at a 3% annual rate over three-months. Intermediate goods output, on the other hand, posts negative numbers on all horizons: -3.7% over 12-months, -6.3% over 6-months and 5.3% over 3-months. The Output of capital goods also fails to show a clear trend with output falling by 2.2% over 12-months, weakening further at a -4.2% annual rate over six-months, then advancing at a 3.2% annual rate over three-months. There was little guidance in this about where industrial production is trending. The headline for manufacturing simply shows negative growth rates on all horizons without clear tendencies and the sectors are mixed.

Country performance In October among thirteen of the oldest monetary union members and early reporters of industrial production, seven of them showed manufacturing output declines, this compares to eight of them showing declines in September, and seven showing declines in August. A little over half of the core of reporters in this table are showing declines on a month-to-month basis regularly.

Countries sequentially Sequential growth rates for the monetary union, as we saw above, show negative growth rates without clear trends. The 13-EMU member countries in this table show six-with output declining over three-months, nine with output declining over six-months and eight with output declining over 12-months. The number with output declining diminishes over three months but not by a lot although the median change in output among these 13-members transitions from negative readings over six-months and 12-months to post a positive reading of 0.4% over 3-months.

Quarter-to-date On a quarter-to-date basis seven of the 13 member countries in this table should log output declines the median output change among the 13 members was -0.3%, this compares to industrial production overall having a -0.7% decline, and with manufacturing output being flat in the quarter-to-date. Quarter-to-date readings at this point are not that meaningful in and of themselves because October is the first month of the new quarter and so the growth rate is giving us the growth in October from the middle of the previous quarter it simply tells us that we're off to a flat to negative start in the new quarter but the final quarterly growth rate could still be quite different.

Abject weakness since Covid The final column of the table compares where output is today compared to where it was January 2020. By looking at this column we can see how weak this period has been for the monetary union overall. Output is lower since January of 2020, a period that is now more than 4 1/2 years long; manufacturing output is lower as well. The output of consumer durable goods is lower, the output of intermediate and capital goods is lower, however, the output of consumer nondurable goods over this period is up by 9.8%. Seven of the monetary union members in the table show manufacturing output declines on balance since January of 2020, these are: Portugal, Malta, Luxembourg, Italy, France, Germany, and Austria. This list contains 3 of the 4 largest EMU economies. Among these, Germany has the biggest shortfall in output compared to January 2020 with output lower by 12.1%. Portugal has output lower by 7 percentage points, Luxembourg, an extremely small country, has output lower by 9.1%. The countries that have done well over this period are Ireland where output is up by 51% compared to January of 2020, Greece where output is up by 14.8%, The Netherlands where growth is up by 4.8%, and Belgium where growth is up by 5.5%. Even so few of these statistics are that impressive when you realize that these are raw period-to-period percentage gains over a 5-year period.

On Balance: The upshot is that output in the European Monetary Union continues to be listless and it isn't showing any sign of breaking out of the torpor that has encompassed it and its various member countries. There are strong three-month gains in output being recorded by Malta, Portugal, Spain, Ireland and by Luxembourg. There are output increases over three-months and six-months in a row by Spain, Malta, and Ireland. Output increases over three-months, six-months, and twelve-months occur in Spain, Malta, and Ireland. These results contrast with declines for three-months in a row in Austria, Belgium, Italy, The Netherlands, and Greece. Countries in the monetary union are continuing to suffer cross currents, and EMU continues to be a difficult place for the European Central Bank to make a single monetary policy that suits all.

Inflation in Sweden rose by 0.6% in November after rising by 0.7% in October and gaining 0.2% in September. HICP inflation is on another strong streak in Sweden. But, year-over-year Swedish inflation is up by only 2%. There is a parallax view of price pressure from the domestic inflation gauge where the monthly gains are only about half the gains of the HICP monthly, and where year-on-year inflation is up by only 1.5%, slips to a 0.4% pace over 6-months then accelerates sharpy to a 3% pace over 3-months – quite different from the HICP pattern and inflation levels. Both domestic and HICP inflation are well behaved over 12-months and while these readings differ a lot after that (over 3-Mo and 6-Mo) they both show inflation accelerating over 3-months compared to its 12-month pace. In neither case is inflation still falling.

In November inflation accelerated for food and non-alcoholic drinks, for health and medical care, for recreation, and for other goods and services. Inflation accelerated in 55.6% of the categories, the same as in October down slightly from 66.7% of the categories with accelerating inflation in September.

The readings in the pattern for domestic inflation are clear and muted. But HICP inflation in Sweden may be becoming a problem as it stops falling too soon. It may be becoming a bigger problem as sequential inflation rates for 12-months, six-months, and three-months show a steady increase in inflation although that is not accompanied by a steady rise in diffusion.

Diffusion is derived from the domestic index Over 12-months inflation is decelerating in all categories compared to 12-months ago. This is the sense of progress that Sweden has made on past high inflation. But over six-months compared to 12-months inflation is accelerating in 55.6% of the categories. That occurs with the overall domestic inflation rate rising by to only 0.4% at an annual rate from its 1.5% pace over 12-months; given the decline in the pace of inflation the increase in diffusion is surprising. Over three months the diffusion rating decelerates logging a reading of 33.3%, down from 55.6% over 6-months. The diffusion calculation compares 3-month inflation to the six-month inflation rate across categories. The headline domestic pace, of course, accelerated to 3.0% over 3-months from 0.4% over 6-months – still, diffusion narrowed. Inflation and diffusion are out of step.

Two inflation measures, quite different inflation What we see here is a substantial difference between the national CPI and inflation as measured according to the HICP. The national CPI shows 12-month inflation at 1.5% dropping down to 0.4% at an annual rate over six months and then re-accelerating the 3% over 3-months, while the HICP shows a steady acceleration in Swedish inflation. The national index shows the step down from 12-months to six-months and then a significant step up over three months, although the step up is to a pace that's only half of the pace that's measured by the HICP. Even so, there is a step up in inflation over 3-months the same as for the HICP. According to the national CPI, there's an increase in prices over 3-months in housing costs to 5.7% from -7.7% and transportation costs that only fall by 2% after falling by 14% over 6-months. But those two readings are enough to accelerate the headline in the national index to 3.0% from 0.4%.

Inflation rankings The rankings on inflation orders each category on its 12-month price gain historically. This ranking shows the HICP has a 69-percentile rank meaning it has been higher only 31% of the time. On the other hand, the national index has only a 47-percentile rank, which says that it is below the 50% mark, indicating that inflation is below its historic median and that refers to the year-over-year rate of 1.5%. As such, it's below its median and thar is true of all categories of domestic inflation except clothing and footwear, education, healthcare, Recreation, and other goods and services. Costs have become weak by historic standards (below median).

Inflation is no longer falling Whether we use the domestic gauge or the HICP gauge Sweden's inflation is becoming more of a problem based on momentum. The monthly diffusion numbers have been above 50, indicating there is more acceleration than deceleration for the last three months. However, the national CPI numbers have been persistently below and approximately half the gain being registered by the HICP. The HICP is the kind of index that is used across Europe and by the European Central Bank to assess inflation in the European Monetary Union. All this leaves us with a bit more of a complicated view of inflation in Sweden but at the very least the bottom line is that inflation is no longer falling and that's a trend that's been noted across many countries. Even countries like Sweden that have made tremendous progress over where inflation was a year a year and a half ago have seen progress stall. All of a sudden inflation has become stuck and generally stuck at a level that's higher than where the target is. Sweden has its year-over-year numbers in place, but its shorter tenor numbers are showing more pressure, making the outlook more uncertain. But because of the current pace of inflation being stuck here, it is not so uncomfortable as it is being stuck at current inflation rates elsewhere in the world.