Economy in Brief

Inflation in the European Monetary Union rose sharply in November, logging a 3.1% annual rate increases on a month-to-month basis. This represents an acceleration from a 1.9% annual rate month-to-month change in October and follows a 2.5% annual rate decline month-to-month in September. The core HICP is available only through October, a month when it expanded month-to-month at a 3.2% annual rate, after falling month-to-month in September at a 0.3% annual rate. The month-to-month inflation results and trends are not particularly encouraging.

Monthly trends mix good with bad news- The table below presents annualized rates of change on all horizons to permit easy comparisons of one tenor with the next. In November, the median annualized inflation rate for this group of 10 countries was an annual rate gain of 1.9%. That represented an acceleration from 0.9% in October; October represented an acceleration from -3.2% at an annual rate in September. All the median results are below the 2% target set by the ECB – and that is good news- but the trend in the monthly data remains adverse. But, of course, we also have the overall EMU results that show inflation just under ‘target’ in October at 1.9% but back to excessive in November at 3.1%.

Monthly sequences by country disappoint- Looking at the monthly sequence of inflation numbers, Belgium shows monthly inflation trends from September to October to November accelerating steadily, as does Luxembourg, the Netherlands, and Spain. There are no countries in this sample with inflation rates showing step-wise deceleration from September to October to November except Greece.

Broader sequential inflation patterns However, sequential inflation, viewed broadly from 12-months, to six-months, to three-months, shows deceleration in the headline with 12-month inflation at 2.3%, the six-month pace falling to 1.7%, annualized and the three-month pace down to 0.8% at an annual rate. The core CPI that is calculated by lagging data by one-month shows relative stability over 12 months and six months, amid only a minor 6-month backtracking, and then a drop off in the three-month annualized inflation rate to 2.1% - essentially on-target.

Broad cross-countries annualized inflation rates over 12 month, six months, and three months, show a steady decline in the pace of inflation for Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and Ireland. Only Portugal, Spain, and Greece fail to show decelerating patterns; among those countries, there's no discernible acceleration or deceleration tendencies.

Good news- tempered- The appearance of broad sequential deceleration is good news; however, it does buck the trend of significant accelerating tendencies for inflation over the last three months and that raises some question of where the trend is really headed. Over three months compared to six months inflation decelerates 70% of the categories; over six months compared to 12 months inflation decelerates 90% of the categories; inflation over 12 months compared to what it did 12 months ago shows deceleration in only 40% of the categories. The median inflation rate for the monetary union shows deceleration falling from a 2.4% annual rate over 12 months, to 1% pace over six months, to a 0.2% annual rate over three months inflation progress. But the headline is not as compliant as that. At the same time, good trends are present, and good news is elusive depending on the timeline and metric we wish to focus on.

Mostly excessive inflation over 12 months- With an ECB target inflation rate of 2%, the 12-month change in the HICP is excessive at 2.3%. The core which lags a month is excessive but the pace at 2.8% year-on-year. Inflation, measure year-on-year, is excessive in Belgium, Germany, the Netherlands, Portugal, Spain, and Greece. Inflation is compliant or below the target set by the ECB in France, Italy, Luxembourg, and then Ireland. Of course, these are only references, only the official EMU-wide inflation rate matters.

Manufacturing production trends in the European Monetary Union (EMU) showed slippage in October, with the mean change in production among thirteen of the longest standing members posting a drop of 0.1% following a drop of 0.7% in September and a drop of 0.2% in August.

Monthly trends Among these 13 members, seven of them posted declines in October including a decline in Germany, the largest economy in the EMU and in Italy, the third largest economy in the monetary union. September had produced declines in eight of the thirteen reporting members; that compares to seven that showed declines in August. On a monthly basis, slightly over half of the reporting countries have been showing declines on a regular basis over the last three months. The largest economy in the monetary union, Germany, has showed declines in two of those months. France, the second largest economy, has showed a decline in only one of those months. Italy, the third largest economy, has showed declines in two of those months. Spain, the fourth largest economy, has logged a decline in only one of those months.

Sequential trends Sequential growth rates from 12-months to six-months to three-months do not show a clear pattern, but there is an improvement over three months where the median growth rate for these 13 countries is 0.4% at an annual rate. That compares to a decline of 3.1% at an annual rate over six months and a decline of 1.4% at an annual rate over 12 months. Over three months six of the thirteen countries showed declines in industrial production. Over six months, nine of the thirteen countries showed declines. Over 12 months, declines are logged in eight of the thirteen countries. The breadth of the declines in industrial production and the monetary union has therefore not been spreading but it is still significant. Among the largest countries in the monetary union, Spain, the fourth largest economy, does not show any declines in industrial production over 12 months, six months, or three months. Italy, the third largest economy, shows declines over all of those horizons. France shows declines over 12 months and six months; Germany also shows declines over 12 months and six months.

Momentum: accelerations/deceleration Looked at over 12 months, 50% of the reporting monetary union countries show output accelerating compared to their growth over the 12 months earlier. Over six months 50% are accelerating compared to their 12-month annual growth rates. Over three months the percentage accelerating compared to six-months is slightly lower, at 45.5%. These statistics underpin the sense in which output growth acceleration or deceleration continues to be more mixed than it is dominated by a trend. The propensity for output to either accelerate or decelerate is hovering around the neutral value of 50% over twelve months, six months, and three months. That assessment is in the aggregate. There clearly are members that are showing more weakness and even progressive weakness although there are no members showing progressive acceleration. Greece shows progressive weakness with six-month growth weaker than 12-month growth. Three-month growth weaker than six-month growth and six months weaker than twelve months for the Netherlands, as well as for Belgium and Austria. There are no clear accelerating tendencies. Italy shows a drop in output over 12 months at a 3.7% annual rate then improves to a 1.7% annual rate drop over six months and over three months, making Italy the closest thing there is to showing an accelerating pattern among countries and the monetary union. Still, there are countries that are showing more strength even if it isn't consistent formally acceleration such as Malta that logs a 28.2% annual rate in output over three months and Portugal that has a 25.4% annual rate gain in output over three months. Spain shows output increasing on all horizons and has only a slight step down over six months compared to 12 months; it logs an increase at 14.8% at an annual rate over three months so even though it's not strictly persistent acceleration there's still evidence of some strengthening.