Data released on Tuesday by Eurostat, the EU’s statistical office, showed that eurozone producer price inflation (PPI) accelerated more than expected to a fresh record high in August, due to soaring energy prices.
On a monthly basis, producer prices increased by 5.0% in August, marginally above the expected increase of 4.9%, and after rising 4.0% in July. “Industrial producer prices increased by 11.9% in the energy sector, by 0.9% for non-durable consumer goods, by 0.3% for capital goods and for durable consumer goods and by 0.1% for intermediate goods,” Eurostat reported.
Overall producer prices rose 0.3%, excluding energy. On an annual basis, producer prices rose by 43.3%, faster than the revised 38.0% rise in July. Energy prices continued to increase throughout the last 12 months, amounting to a sharp rise totalling 116.8%, on an annual basis.
The Spanish services Purchasing Managers’ Index (PMI), contracted to 48.5 in September from 50.6 in August. For the first time in nine months, both activity and new business fell, due to deteriorating market conditions, dragged lower by inflationary concerns driven by increased energy and utility costs. New export business declined for the third successive month.
The Spanish manufacturing PMI also weakened further in September, to 49.2, down from 49.9 in August, as industrial activity has been hit hard by the current high energy prices. This manufacturing sector also faces other cost rises as operational expenses rose at the sharpest rate in three months.
Meanwhile, falling demand will make it difficult to pass on higher costs to the end consumer, consequently squeezing further profit margins. With both the manufacturing and service sector PMIs falling below the 50 level, recessionary concerns are rising.
The US Commerce Department published its third revised estimate of economic activity during the second quarter, revealing that the headline decrease in gross domestic product was unchanged from the previous estimate. As expected, the report stated that real Q2 GDP fell by 0.6% in the second quarter, unchanged from the decline reported last month.
This follows a 1.6% contraction in Q1, and hence the two consecutive quarterly decreases indicating that the US economy is in a technical recession. US Q2 GDP declined due to a record trade deficit, the end of the pandemic stimulus and a sharp decline in business spending, especially on new inventories. A reduction in so-called gross domestic income, basically wages and profits, was the biggest report revision surprise.
The growth in income was revised down in Q2 to 0.1% from the previous 1.4%. Income growth was also lowered to 0.8% in Q1 from 1.8%.
Meanwhile, US economic activity is still expected to post a rebound in the Q3 GDP report, with median forecasts indicating a weak 0.6% growth, a sharp downgrade from the previous September 7 estimate of a much stronger 2.0% growth.
US growth is slowing, albeit with the strongest labour market in decades, dragged by the US central bank, which is quickly tightening monetary policy to tackle high inflation.
This report was compiled by Bank of Valletta for general information purposes only.