There is an art to watching economic indicators. They don’t move in the same direction at the same time. Take the following consecutive stories from this morning’s Wall Street Breakfast on Seeking Alpha.
Eurozone consumer prices tumble. Eurozone CPI dropped a record 1.1% on month in January after rising 0.3% in December, with the fall much sharper than the 0.4% decline that was expected. The index was dragged down by a tumble in the cost of non-energy industrial goods. On year, inflation was +0.8%, as in December. The sharp monthly fall in CPI comes amid concerns about deflation in the eurozone, although the ECB has so far been sanguine.
German corporate optimism increases again. The German Ifo institute’s business climate index has increased to its highest level in 2 1/2 years, rising to 111.3 in February from 110.6 in January and topping consensus that was also 110.6. The current-situation reading rose and exceeded forecasts, although the expectations print slipped. “The German economy is holding its own in a changeable global climate,” says Ifo.
Reconciling these two items isn’t easy. Prices should be dropping because demand is bad. But if demand is bad, corporate optimism shouldn’t be increasing. They key is reading the second item carefully. The business climate and current situation readings are better than expected, but the expectations were lower than forecast. They can match up if prices continue to fall which would be the correct attitude towards future business expectations.