25/4/2014: Wholesale Prices in Ireland: March 2014

Deflation at consumer prices level is a two-edged sword. Whilst it normally rises savings and delays consumption, it also helps households stuck in debt to deleverage faster and it beefs up surplus savings available for investment.

But deflation at producer prices level is a case of gained competitiveness at the expense of future growth as it reduces value added in production and lowers future investment. It also leads to reduced hiring and can lead to cuts to the workforce.

Behold Ireland's pain...

According to CSO (http://www.cso.ie/en/releasesandpublications/er/wpi/wholesalepriceindexmarch2014/#.U1kL4-ZdWzg): we are now in full-blow deflationary spiral in terms of producer prices.

Drilling into specifics:

1. Export prices down 3.6% y/y and domestic sales prices down 1.1% y/y. Yes, exports price changes can be down to FX volatility, but no - this means nothing much as lower prices still mean lower revenues.
2. On upside: dairy products prices were up 12.6% y/y, wood and wood products prices up 10% y/y. Good news for least value-additive sectors of Irish economy. Other manufacturing prices were up 1.3%, beverages up 2.2%. And durable consumer goods industries prices up 1.3%.
3. Beyond that, almost everything else is either flat or down. You can see the details in the last column in Table 2 linked above.
4. One to watch: prices of energy products are down 17.2% y/y and petroleum fuels down 3.2%. Let's see if our heroes at state-controlled energy behemoths are going to pass any savings to consumers (hint: I doubt it).

So overall, not good news - sustained pressure on producer prices. Negative m/m inflation is now recorded in every months starting with October 2013 and on the annual basis, prices-signalled activities in the economy are running at the rates of growth consistent with late 2012-early 2013, not with a strong rebound. Of course, this is just a signal...

21/3/2012: Wholesale Price Indices for February 2012

A quick note on wholesale prices for January-February 2012.

Per CSO:

• Monthly factory gate prices declined by 0.6% in February 2012 mom against a decrease of 0.2% recorded for February 2011. Annual prices rose 2.3% in February 2012, compared with an increase of 2.7% in the year to January 2012.
• Price index for export sales decreased by 0.9% mom while the index for domestic (CSO calls it 'home') sales rose 0.3%. 
• Yoy there was an increase of 1.9% in the price index for export sales (CSO notes, correctly, that this index can be influenced by currency fluctuations) and an increase of 3.7% in respect of the price index for home sales.
• So domestic factory gate inflation is outstripping exports sales. The summary below explains.

Mom the most significant changes were increases in

• Other food products including bread and confectionary (+2.1%), 
• Electrical equipment (+1.5%) and
• Other non-metallic mineral products (+0.4%), 

Most significant mom prices decreases were recorded in

• Computer, electronic and optical products (-2.0%), 
• Basic pharmaceutical products and pharmaceutical preparations (-1.4%) and 
• Chemicals and chemical products (-1.1%). 

Yoy, the most significant contributions to prices changes were in

• Meat and meat products (+7.8%), 
• Other food products including bread and confectionary (+4.9%) and
• Computer, electronic and optical products (+3.3%),
• Electrical equipment (-3.2%), 
• Furniture (-2.3%) and 
• Basic pharmaceutical products and pharmaceutical preparations (-1.7%). 

Yoy, Building and Construction All materials prices increased by 1.7% in the year since February 2011. The most notable yearly changes were increases in Insulating materials (+10.1%), Other timber excluding windows and doors (+9.7%) and Concrete blocks and bricks (+7.8%) while there were decreases in Sand and gravel (-9.4%), PVC pipes and fittings (-7.8%) and Other steel products excluding structural steel and
reinforcing metal (-2.3%). Building and Construction All material prices increased by 0.1% in the month. This suggests that there is no significant signs of uptick in building & construction sector, but there is some ongoing inflation feed-through in heavily subsidized insulation and refitting activity.

Year on year, the price of Capital Goods increased by 0.7%, while the monthly price index increased by 0.1%. Again, spare capacity in the sector relating to investment continues to run against the lack of demand.

The core driver of all price hikes, is most likely energy cost, feeding through a lag. Price of Energy products rose 3.9% in the year since February 2011, and Petroleum fuels increased by 10.3%. In February 2012, the monthly price indices for both energy-related categories decreased by 0.1%.

20/09/2011: Wholesale Prices - more margins pressure

Wholesale Price Index for Ireland is out today - monthly series (note - these are highly volatile series in general) and the results are not too good for profit margins in Irish manufacturing.

Monthly factory gate prices declined 0.4% in August 2011 against an increase of 0.2% in August 2010, implying annual rate of contraction of 1.0%. In July 2011, annual rate of decrease stood at 0.4%.

Overall price index for manufacturing industries (NACE 10-33) stands at 97.2 in August 2011, down from 97.6 in July and 98.2 in August 2010. We are now in the third monthly decline in a row.

Stripping out effects of food, beverages & tobacco sector, manufacturing price index fell to 92.2 in August 2011, down from 92.5 in July and 94.2 in August 2010. Year on year index is now down 2.1% against annual decline of 1.5% in July.


In the month, the price index for export sales was down 0.5% while the index for
home sales (domestic sales) increased by 0.1%. In the year there was a decrease of 2.2% in the price index for export sales (this can be influenced by currency fluctuations, as CSO correctly points out). In July 2011 annual rate of decline was 1.6%. However, CSO fails to point out that deflation has been affecting severely our largest exporting sectors - pharma and ICT (see below on this). In August 2010, annualized rate of change in export prices was +0.2%.

There was an increase of 4.7% in respect of the price index for home sales (this can be influenced by state-controlled producers ripping-off domestic consumers, but hey, no mention of that in CSO release). In July 2011 there was a 4.9% increase yoy in same prices. And in fact, domestic sales prices have been rising every month since December 2009, implying increasing pressures on retail sector here and domestic consumers.

So the two-tier economy is well supported by price changes as well as production volumes: our exports are getting cheaper (last increases in exports prices yoy were recorded in January 2011), while our domestic sales are getting more expensive and fast. The last time changes in prices in domestic sector fell behind changes in prices (in same direction) in exports sectors was July 2010. And not a peep from either our policymakers or the CSO about these facts.

What CSO does highlight is that: "Contributing to the annual change were increases in Dairy products (+10.1%), Meat and meat products (+8.1%) and Other Manufacturing including Medical and Dental Instruments and Supplies (+3.2%), while there were decreases in Computer, electronic and optical products (-6.4%), Basic pharmaceutical products and pharmaceutical preparations (-3.6%) and Other food products including bread and confectionary (-1.1%)."
Now, recall that pharma accounts for 90% of our trade surplus. Basic pharma sector wholesale prices have now fallen to 87.4 in August 2011, down from 90.7 in August 2010 and from the local peak of 106 attained in November 2008.

CSO does report that "The price of Energy products increased by 3.3% in the year since August
2010, while Petroleum fuels increased by 9.1%. In August 2011, the monthly price index for Energy products decreased by 1.4%, while Petroleum fuels decreased by 3.7%." I would add that electricity remained unchanged at 115.2 year on year and most of price increases in this sector are due to Petrol and Autodiesel (both +9% yoy), Gas oil (+10.3%) and Fuel oil (+8.8%).

Year on year, the price of Capital Goods decreased by 5% in August, to 82.5 and it was down 4.3% in July. The index now stands at 82.5, down from 83 in July 2011 and 86.8 a year ago. Intermediate goods ex-energy price index rose 2% in August (yoy) against yoy rise of 2.7% in July. This index remain in the positive territory since November 2011.

Daily economics update 19/03/2009

Excellent piece on Irish Nationwide excesses here - I would certainly encourage everyone to read through it.


On the news front -

Ireland:
Per CSO (here): the number of overseas trips by Irish residents fell by 8.4% to 502,100 in January 2009 compared to the 548,400 a year ago. Brian^2+Mary's tax on travel and recession biting. And euro's steady rise has taken a bite out of travel to Ireland too: there were 424,200 overseas trips to Ireland in January 2009 - down ca3% on 2008. "Visits by residents of Great Britain accounted for virtually all of this decrease, falling by almost 16,000 (7%) to 208,300." Needless to say - this is costing this country. Visits by residents of Other Europe and North America recorded slight increases to 149,500 and 45,200 respectively. No breakdown on vitally important length of stay and locations visited by foreign tourists here was made available. The crucial point missing here is just how bad is it going to get for Irish hotels, located outside Dublin. In recent months, these palaces of rural kitsch built on the back of senile tax breaks to developers, courtesy (in part) of Brian Cowen in his tenure as Minister for Finance, have been popping out of business like flies in late autumn.

Also courtesy of CSO:
Monthly factory gate prices increased by 0.9% in February 2009, as compared with an 0.2% rise recorded a year ago, the annual increase of 3.9% in February 2009, compared with and annual rate of growth of 3.2% in January 2009. Inflation cometh? Well, possibly. In the year the price index for export sales was up 4.3% while the price index for home sales was up 1.7%.

Wholesale price changes by sector of use shows that: Building and Construction All material prices decreased by 1.2% in the year since February 2008 (surprisingly, very small deflation in the face of all but collapsed construction), and there were increases in Cement (+8.0%), and Stone, sand and gravel (+4.8%). At least Sean Quinn can always go back to mining boulders. Year on year, the price of Capital Goods decreased by 0.1%, and the rate is accelerating to -0.4% last month. The price of Energy products increased by 5.2% in the year since February
2008, while Petroleum fuels decreased by 17.9%. So ESB and Board Gais are still ripping us off, while teh Government is fast asleep. In February 2009, there was a monthly increase in Energy products of 0.4%, while Petroleum fuels increased by 1.6%.

But hey, the good news is that we are now in a 'breeding boom'. According to the CSO, there were 19,027 births registered in Q2 2008, an increase of 1,900 on 2007. Q2 2008 total is 40% higher than in 1999. "This represents an annual birth rate of 17.2 per 1,000 of the population, 1.4 above quarter 2 of 2007. This rate is 2.7 per 1,000 population higher than in
1999."

Incidentally, the latest US data shows that the country population is also booming. The preliminary estimate of births in 2007 rose 1% to 4,317,119, the highest number of births ever registered for the US. The general fertility rate increased also by 1% in 2007, to 69.5 births per 1,000 women aged 15–44 years, the highest level since 1990.

Clearly a good sign for Brian^2+Mary, who can now rest asured that Irish families are producing more future taxpayers for the Government to continue ripping off ordinary families. The bright future is at hand at last for public sector wages and pensions.


US:
There are some signs of longer-term lead indicators revival in the US. Much has been said about housing starts bottoming out and the fact that these are only long-term lead indicators for house prices (see here).

Unemployment - new claims have fallen by 12,000 to 646,000 in t he week ending March 14, while the numbers collecting unemployment benefits rose by 185,000 to a record seasonally adjusted 5.47 million by March 7th. The four-week average of new claims also rose by 3,750 to 654,750, the highest level in 26 years. Still, at least some things are starting to move in the right direction.

In the mean time, General Electric said it now expects GE Capital Finance unit to be profitable in Q1 and for the full year 2009. This follows a recent $9.5bn injection of capital by the parent. This, if holds through the year, is good news, as GEFC has been at the forefront of writing dodgy loans and mortgages to distressed consumers in 2005-2007.

Of course, Wednesday data was also showing some signs of the bottoming in the US recessionary dynamics. US consumer prices increased a seasonally adjusted 0.4% in February, primarily on the back of a 3.3% rise in energy costs (8.3% rise in gasoline prices). Food prices fell 0.1% in the first decline since mid 2007. Core CPI (ex Food and Energy) was up 0.2% - a nice range signaling possible end of deflation.

This is not to say that the current rallies are sustainable. So far, we are starting to see some early stage recovery indicators attempting to find the floor. It will take couple of months for them to start turning. But the markets will remain bearish until the second stage indicators start flashing upward turn-around. These are existent unemployment claims, construction indices, pick up in resale markets activity, PMIs etc. Until then, you'll have to be brave to wade out of the cash safety into individual equities.

And the latest news on the second stage indicators is poor. The index of leading economic indicators - designed to forecast economic activity 6-9 months ahead - fell 0.4% in February, following a gain of 0.1% in January 2009. Overall, 6 out of 10 indicators were up in February and 4 were down. According to Ian Shepherdson, chief economist with High Frequency Economics, "The trend remains clearly downwards, consistent with continued outright contraction in the economy."