Economy in Brief

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.

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.