Euroland Producer Price Trends

February 2, 2011

A 5.3% advance in euro area producer prices between December 2009 and December 2010 more than reversed a 2.9% drop in the previous twelve months.  The most pronounced shift was in energy, where producer costs increased 11.3% in the latest year after dropping 5.6% in the year to December 2009. Energy wasn’t the only responsible item, however.  Non-energy producer prices rose 3.3% after falling by 2.3% in the year to December 2009.  Prices for intermediate goods experienced the second largest swing, rising 6.2% in the latest 12 months after declining 3.4%.  Next came non-durable consumer goods, which after dropping by 2.3% sprang back 1.4%.  Producer prices for capital goods only climbed 0.8% between December 2009 and December 2010 following a 0.5% drop in the prior year.  Producer prices increased 4.3% at an annualized rate between the third and fourth quarters of last year based in the PPI’s quarterly averages.

Germany’s ongoing improvement in competitiveness can be seen in these producer price data.  Over the two years between December 2008 and December 2010, German producer prices edged 0.4% lower on balance even though such posted a 0.7% monthly increase in the most recent month.  Over the same two years, producer prices advanced 11.7% in Greece, 9.5% in Finland, 5.7% in both Spain and Portugal, 5.1% in Belgium, 2.9% in Italy, 2.4% in France, 1.6% in The Netherlands and 1.3% in Ireland. 

An accidental leak today of Italy’s service-sector purchasing managers January survey results revealed a 0.3-point drop and the first sub-50 reading in six months, albeit a score of 49.9.  Preliminary service-sector reports released on January 24 showed a full-point increase for Euroland as a whole to 55.2, a 2.2-point rise in the French score to a four-month high of 57.1, and a 0.8-point gain in the German index to a 55-month high of 60.0.  Final results in those three cases plus several other European economies will be released tomorrow as scheduled.  Service-sector activity, including new orders, in Italy apparently stalled at the start of 2011, which contrasted with the highest Italian factory PMI reading since June 2006 reported earlier this week.  Service-sector firms are facing the fastest pace of cost inflation since November 2008, and business expectations about the future sunk to an 18-month low.

The ECB monthly press conference is also scheduled for tomorrow.  Trichet always is asked about the vastly different growth and price trends among the members of the euro area and each time replies that big disparities also exist among the 50 states of America.  The states, like the seventeen sovereign nations that now comprise the euro area with the addition of Estonia last month, have to live with the fact of a single currency and a one-size-fits-all monetary policy.  The analogy is not as appropriate as Trichet would have us believe.  U.S. states are not allowed to run budget deficits.  Euroland’s biggest economy, Germany, represents slightly more than 25% of Euroland GDP, while the largest U.S. state, California has a 13% of U.S. GDP.  The four largest economies in the euro area, comprising a quarter of currency union members, constitute slightly more than three-fourths of GDP.  The 15 biggest U.S. states, 30% of the total, represent just 55% of U.S. GDP.  The distribution of Euroland GDP by country is more concentrated than the state shares of U.S. GDP, and the Fed can afford to be less sensitive to conditions in California than the ECB needs to be to what’s happening in Germany.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

Tags: ,


Comments are closed.