Eurozone: Disinflation engulfs the industrial goods sector

Press conference by Olli Rehn, Member of the European Commission, on the spring economic forecasts for 2012-2013. (EC Audiovisual Services)

Press conference by Olli Rehn, Member of the European Commission, on the spring economic forecasts for 2012-2013. (EC Audiovisual Services)

 

In three months, from July to September this year, inflation in Eurozone fell from 1.6% to 1.1%, with a brief stopover of 1.3% in August. The European Sting has been sounding the alarm for months now, over this fast deceleration of consumer goods prices. This trend is present all along this year, starting from the very low inflation levels of the beginning of 2013, to 1.2% last April and now 1.1% in September. The news for this new steep drop of inflation came from Eurostat’s September flash estimate for Eurozone’s annual price change rates, published yesterday night.

If looked in a bit more depth, Eurostat’s estimates are even more alarming. According to this source, all-items inflation excluding energy, food, alcohol & tobacco fell to just 1% in September. Some weeks ago Sting writer Suzan A. Kane stressed that, “…energy prices in the European Union and the Eurozone may be considered as exogenous factors. The reason is that the largest part of energy goods comes from abroad and its prices are not determined at home…As for the other large category of consumer goods ‘food, alcohol & tobacco’, its price determinants also belong largely to non-economic factors. Prices of fruits and vegetables which constitute the largest item in this sub category depend greatly on weather conditions which for obvious reasons are exogenous. For different reasons the same is true for the prices of alcohol & tobacco. Those prices are determined almost entirely by the excise taxation imposed on them”.

What market services?

For all those reasons Eurostat publishes its inflation estimates for the core economic sectors, without the effects from energy, food, alcohol & tobacco. What is left if those categories are taken out, it’s the items under two headings; non-energy industrial goods and services. Those two categories however represent between them 69.66% of consumer spending, that is the bulk of family budgets. I detail now price inflation rates in non-energy industrial goods and services are 0.3% and 1.5% respectively.

Unquestionably the category of services is the most important item as far as consumer spending is concerned, with a weight of 0.423, always according to Eurostat. This means 42.3% of consumer spending is absorbed by services. However this sector’s structure contains market and non-market services. Services pricing in the last sub category of non-market services, is determined by the administration, rather artificially without close relation to market factors as its very title implies.

As for market services, the largest component of ‘production cost’ in this domain depends on labour costs, due to the labour intensive character of the sector. It’s not only that though. The institutional environment in which the market services sector operates and the way services workers are engaged depend largely on the rules set by the administration or other regulatory and professional bodies. These rules do not depend on the day-to-day developments in the economy and are set largely with non-market criteria. In many respects then, even market services pricing is largely determined by non-market factors.

Industrial disinflation

As a result what is left to genuinely represent the state of the economy and the short term developments in production structures, is the sector of the non-energy industrial goods. This sector absorbs more than one-fourth of consumer spending (27.4%) and its pricing policies constitute the best indicator of the state of the economy. Manufacturing in Eurozone may be in a long-term downward path, but still it represents the core abilities and the strong points of the European economy.

Unfortunately, the sector is clearly in a state or close to disinflation. According to Eurostat, price changes of non-energy industrial goods during September 2013, was restricted to only 0.3%. Subdue price changes have been haunting the sector for quite some time. All along this year the relevant inflation sub index falls steadily from slightly below the unit to a mere 0.3% in September. The reasons for this development might be a weak demand or production overcapacity or both. Whatever the causes, the fact is that this core sector of Eurozone’s economy is heading or already has entered in a disinflationary spiral.

No doubt then that the threat of disinflation is more than real, and policy makers in Brussels, Berlin and elsewhere in the euro area must think twice before insisting stubbornly on the currently applied austerity policies.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

The Free World Experience Report – LGBTQI+ health on the spot

The EU approves a new package of budget assistance to the Republic of Moldova to support rule of law and rural development reforms

How Greece was destroyed

How can education empower youth to become tomorrow’s leaders

Dare to be vulnerable, and three other lessons in leadership

Empathic AI could be the next stage in human evolution – if we get it right

Pharmaceuticals: Commission refines intellectual property rules

Israel @ MWC14: Israel The Start App Nation

What we need for a better European Solidarity Corps

Employment MEPs want to ensure more flexibility and clarity for EU mobile workers

What Ghana can teach us about integrating refugees

Ethiopia is Africa’s fastest-growing economy

UN highlights need to solve growing burden of forcibly displaced Africans

State aid: Commission refers Greece to Court for failure to recover incompatible State aid from mining company Larco

If you build it, they will come: Why infrastructure is crucial to tourism growth and competitiveness

Here are 4 ways investors can influence more secure and responsible innovation

Fostering global citizenship in medicine

Draghi: Germany has to spend if Eurozone is to exit recession

How the technology behind deepfakes can benefit all of society

Prolonged economic crisis and drought demands urgent response for Zimbabwe’s ‘hardest hit’: UN relief chief

Fairer food supply chain: Agriculture MEPs clamp down on unfair trading

7 ways for businesses to capture the youth dividend

Afghanistan: EU reinforces humanitarian support with €40 million as crisis worsens

India is a latecomer to AI. Here’s how it plans to catch up

It’s time we took a seat ‘at your table’: Guterres calls on world youth to keep leading climate emergency response

Africa must use tech to chase corruption out of the shadows

The UN’s unyielding effort to tackle sexual abuse and exploitation: our quarterly update

Medical ethics in the age of the social media influencers

EU and China seize momentum to enhance trade agreements in response to Trump’s administration

Consumers’ rights against defective digital content agreed by EU lawmakers

We spend half our time at work in meetings – and that’s not necessarily a bad thing

Millions in Idlib ‘counting on your support to make the violence stop’, UN relief chief tells Security Council

This is how we inspire young people in the Middle East to join the fight against climate change

Postal workers in France are helping elderly people fight loneliness

The new crisis is already creeping into the financial system

9 climate tipping points pushing Earth to the point of no return

Parliament toughens its position on banking union

Draghi’s 2018 compromise: enough money printing to revive inflation and check euro ascent

The European Council takes more measures to stem illegal migration

How we can work together in the fight against NCDs

Europe moulds global defense and security chart given US new inward vision

Abuse of authority provisions adopted by the Senate raise concerns over Brazil’s capacity to ensure independence of prosecutors and judges in fighting corruption

We need impartial LGBT+ news to advance human rights

These are the best MBAs if you want to be an entrepreneur

IMF: The near-term outlook for the U.S. economy is one of strong growth and job creation

Mergers: Commission fines Canon €28 million for partially implementing its acquisition of Toshiba Medical Systems Corporation before notification and merger control approval

Building climate resilience and peace, go hand in hand for Africa’s Sahel – UN forum

Workplace risks: Final vote on protection from carcinogens, including diesel fumes

A major win for transgender rights: UN health agency drops ‘gender identity disorder’, as official diagnosis

Bullheaded Madrid authorities confront Catalonia with force

Online government services could change your life. But only if you have access to the internet

Halting spread of drug resistance from animals to humans: deal with Council

EP President calls for emergency assistance to migrants stranded on Open Arms boat

The West castigates Turkey’s Erdogan for the ruthless political cleansing

Eurozone: Inflation plunge to 0.4% in July may trigger cataclysmic developments

The West and Russia took what they wanted from Ukraine

Despite lagging in the Global Goals, Africa can meet the 2030 deadline: Rwandan President

Hungary’s laws on helping vulnerable foreigners are ‘blatantly xenophobic’: UN rights chief

Look no hands: self-driving vehicles’ public trust problem

Connected Claims returns to London in 2018

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s