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

the European Sting Milestones

Featured Stings

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

Young people meet in Malta to shape the future of Europe

As human caravan moves through Mexico, ‘full respect’ needed for national control of borders: UN chief

‘Continue working together’ UN chief urges DR Congo, as country heads to polls

World Cancer Day: Early cervical cancer diagnosis could save lives of over 300,000 women

UN launches plan to promote peace, inclusive growth in Africa’s Sahel

UN chief calls for ‘increased commitment’ to resolution on 10th anniversary of Georgia conflict

Eurozone at risk of home-made deflation and recession

UN refugee agency ‘deeply shocked’ at stabbing death of ‘deeply courageous’ Polish mayor

Health Education, is it a necessity?

The Brussels bureaucracy blocks the Youth Guarantee scheme

A Sting Exclusive: “Leading by example! EU must push for UN deal to avoid dangerous climate change”, European Parliament Vice-President Ulrike Lunacek cries out from Brussels

10th ASEM in Milan and the importance of being one: EU’s big challenge on the way to China

How close is the new financial Armageddon? IMF gives some hints

The big five EU telecom operators in dire straights

The Brexit factor in the US-China trade war and other conflicts

Two States ‘side-by-side’ is the ‘peaceful and just solution’ for Israel-Palestine conflict: Guterres

Fresh airstrikes kill dozens in conflict-ravaged Syria

UN and partners appeal for $920 million to meet ‘dire needs’ of Rohingya refugees

Medical Education is #NotATarget

EU Ambassadors in the EP: a multilateral approach to global challenges needed

EU budget: Making the EU fit for its role as strong global actor

The movement of anti-vaccers: taking humanity back 200 years

EU Parliament: Deposit guarantee and trading platform transparency sought

Main results of Environment Council of 09 October 2018

10 cities are predicted to gain megacity status by 2030

Why Italy will not follow the Greek road; Eurozone to change or unravel

Black Panther’s ‘General Okoye’ joins the fight against gender-based violence

MEPs call on EU countries to end precarious employment practices

The battle for the 2016 EU Budget to shake the Union; Commission and Parliament vs. Germany

‘Leaders who sanction hate speech’ encourage citizens to do likewise, UN communications chief tells Holocaust remembrance event

This project in India helps people and tigers co-exist peacefully

ILO’s Bureau for Employers´Activities to publish new study on women in business and management

It’s not summer holidays what lead to the bad August of the German economy

Investing in rural women and girls, ‘essential’ for everyone’s future: UN chief

COP21 Breaking News_03 December: Europe’s children urge leaders to commit to climate action at UN Climate Summit in Paris

European Commissioner for Youth wants young people to be at heart of policy making

The global economy isn’t working for women. Here’s what world leaders must do

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

How the United States can win back its manufacturing mojo

EYE to kick off on Friday: 8000+ young people discussing the future of Europe 1 – 2 June

India’s economy is growing fast, but its poorest areas lag behind. Here’s why this could be about to change

EU Copyright Directive: Google News threatens to leave Europe while media startups increasingly worry

Ecofin: ‘The Friday battle’ for the banking union

How fungi could save the world

UN relief official in Yemen condemns ‘horrific’ attack on passenger buses

Nigeria: UN chief ‘appalled’ by killing of aid worker; calls for release of remaining hostages

Germany openly seeks more advantages for its banks

A young student discusses the determinants of migration in the European Union

Erdogan vies to become Middle East Sultan over Khashoggi’s killing

Robots aren’t stealing all our jobs, says the World Bank’s chief economist

EU Budget 2019 deal: EP boosts support for researchers and the young

European Commission recommends to the European Council (Article 50) to find that decisive progress has been made in Brexit negotiations

European Semester Autumn Package: Bolstering inclusive and sustainable growth

Google prepares to final EU judgement over Android antitrust case

800,000 people commit suicide every year: WHO

A day in the life of a Rohingya refugee

‘Well-being of two million’ in Gaza at stake as emergency fuel runs dry: UN humanitarian coordinator

Eurozone slowly but surely builds its Banking Union

The economic cost of anti-vaccination movements in Italy

MWC 2016 LIVE: Mobile World Congress shows off planes, trams and automobiles

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