Article / 04 February 2014 at 6:30 GMT

3 Numbers to Watch: EU PPI, Italy CPI, US chain store sales

editor/analyst /
United States

• EU PPI likely to reinforce case for deflation 
• Bad figure could force ECB to take action
• Italian CPI in focus for further disinflation clues

There are no major economic reports scheduled for Tuesday, but the issue of deflation risk will remain topical with the release of producer prices for Europe and consumer price data for Italy. Later, we shall see a new, weekly release on US chain store sales.

EU producer prices (10:00 GMT): Using industrial prices as a benchmark, deflation risk is nipping at the Eurozone. Prices have been falling on a year-over-year basis in each of the last four monthly updates, and the deck is stacked for a repeat performance, in today’s December report. Producer price indexes (PPI) for Europe’s big-four economies at 2013’s close have already been published and only Spain sidestepped deflation. Accordingly, another negative read for PPI in today’s EU update looks like a good bet.


The spectre of disinflation in Europe could draw closer today, as tourists take stock in a French cafe. Photo: bass_nroll \ Thinkstock

Monetary policy isn’t helping. Money supply growth in December decelerated sharply while loans to the private sector continued to shrink deeper into the red on a year-over-year basis. There is already a convincing case for stronger measures from the European Central Bank (ECB) to stimulate growth or, at least, to stabilise the creeping risk of disinflation/deflation. Today’s PPI release is likely to provide more statistical ammunition for arguing that the ECB should do more.

Part of the reason why we have not seen more aggressive monetary decision-making is the preference, in some corners, to see the weak pricing climate as something other than a threatening trend. “The lower inflation is part of the economic recovery and the restructuring and it's inevitable,” Jeroen Dijsselbloem, the president of the Eurogroup (a policy group of EU finance ministers) opined last month. “I'm not particularly worried that it'll go further.”

It’s fair to say that such optimism is less than universal these days but some opinions matter more than others. To be precise: will another report that reflects falling prices convince the ECB to roll out a new phase of stimuli via its monthly monetary statement due later this week?

Bear in mind that survey data shows a considerably brighter trend. Yesterday’s final January for the eurozone manufacturing Purchasing Managers Index (PMI), for instance, equates with a modest pace of growth. Is that a clue that the lagging inflation data will soon catch up with the stronger PMI numbers? The answer is arriving in instalments, starting with today’s PPI release.

Source: Eurostat

 Italy consumer prices (10.00 GMT): Deflation has revealed itself in the industrial sector but mild inflation is still the primary trend for consumer prices in Europe. The question is if this bias will give way to the darker side of the “d” risk in the months ahead? That’s an ongoing concern but there are signs that CPI inflation may be stabilising.

The annual inflation rates for each of Europe’s primary economies are positive and, except for Germany's, unchanged in December vs. the pace in the previous month. But the broad trend for Europe overall still looks wobbly and so confidence is thin for expecting that the threat will quickly fade as 2014 unfolds. But confidence may get a marginal boost today if Europe’s third-largest economy can show some evidence that inflation isn't sliding towards zero.

That’s a reasonable guess-timate for today’s provisional consumer price index (CPI) report for January. The annual rate of inflation, according to the National Institute of Statistics (Istat), has slipped to a thin 0.7 percent in the last two monthly estimates. That’s too low for comfort, given what’s going on with the Eurozone in general. But steady is still better than deceleration. True, Italy’s CPI trend has limited value for assessing the big picture as it relates to analysing what the ECB will or won’t say at Thursday’s monetary announcement. Then again, if we see a large change in the trend, up or down, today’s news (the day’s only consumer price data for key countries in Europe) may have more influence than usual.

Source: UK Office For National Statistics

US chain store sales (12:45 GMT): Yesterday’s sharp deceleration in the Institute of Supply Management (ISM) manufacturing index looks troubling. This widely followed benchmark of factory activity in the US via survey data suffered an unusually large monthly decline. The index is still above the neutral 50 mark but the margin of comfort has narrowed dramatically since the previous update. The sudden change for the worse follows last week's news that durable goods orders fell in December and personal income growth was flat in last year’s final month. The shaky numbers will inspire a deeper focus on today’s reports, including the December factory orders release (15:00 GMT), which will round out the durable goods report that was previously published. 

One of the upbeat macro trends that contradicts the latest plunge in the ISM data is consumer spending. Personal consumption expenditures have had a good run lately, with gains reported in each of the past eight months. The data includes last week’s December update, which told us that spending had risen by 0.4 percent vs. the previous month, or slightly above the monthly average for the past year.

But if there is reason to worry, we may see the cracks forming in the weekly estimates of chain store sales. Although this metric isn’t as comprehensive as the Personal Consumption Expenditures (PCE) data, it’s timely and so it’s worth a careful review until we have a better grasp of the macro profile for January via updates in the weeks ahead.

The good news is that the trend is looking a bit stronger lately by way of chain stores. In last week’s update, sales rose 2.2 percent vs. the year-earlier level — the best annual comparison since mid-December. A similar number in today’s release won’t override the weak ISM and PCE data but an upbeat report will be a welcome change, nonetheless. By contrast, a sharp drop for today's sales data is going to be especially tough to digest at this juncture.

Source: International Council of Shopping Centers / Goldman Sachs


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