Something for your Espresso: Producer deflation and a cyclical rebound
Good Morning from Europe.
The disinflation or do I dare say deflation in European producer prices continues. Both Portuguese and German PPIs are now (almost) in deflationary territory and the strength of the overall European economy / consumer will now decide to which extent this will be passed through to consumers. The German PPI for June printed at -0.3% MoM and 0.1% YoY.
If the CPI remains in >2% territory given these PPI numbers, it is hard to construct a negative narrative for equities as margins will gain from such a scenario.
Chart 1: Deflation in European PPIs
Most recent trends point to a combo of outright deflation in the producer leg paired with short-term cyclical optimism. It almost sounds too good to be true given what we have been through. Hello, Goldilocks (for the time being).
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