Just looking at the headlines, it is a bad one especially for the German economy. Europe's backbone is seeing its steepest decline in business activity since May 2020 and that does not bode well for the region, especially with services activity now also slumping hard alongside the manufacturing sector.
What makes matters worse for the ECB is when you dig into the details. In the French report, manufacturing prices were seen falling once again as more positive energy developments and raw material costs are helping. However, all of this is not exactly feeding into the more important parts of the economy as service providers saw their expenses rise sharply in August. That points to core price pressures still being relatively elevated as this will be passed on to consumers.
And in Germany, HCOBO reports that:
"Turning to prices, rates of input cost and output charge inflation ticked up for the first time in 11 and seven months respectively in August, driven in part by a rise in fuel prices. Due to a sustained sharp (albeit slightly slower) fall in manufacturing purchase prices, the overall rate of input cost inflation remained below its long-run average, despite climbing to a three-month high. However, this masked a steep and accelerated increase in operating expenses faced by services firms, who not only commented on the higher cost of fuel, but also sustained wage pressures."
So, we have worsening economic developments across the region, paired with a credit crunch and extremely stubborn inflation. The ECB definitely has a tough job in trying to lead any narratives into September now. Can you say stagflation?
