Economy remains good for US, but deteriorating in Europe

The US economy continues on a sanguine path, with retail sales holding up and inflation moderating.

The Commerce Department reported yesterday that retail sales for June rose 1.7 percent from the previous month. It also reported that May sales were revised up to a 0.3 percent fall compared with the previously-reported 0.5 percent decline. The auto sector was a big contributor in June, rising 4.8 percent, more than reversing its 1.3 percent decline in May.

At the same time, the Labor Department reported that the consumer price index was unchanged in June from the previous month after seasonal adjustment. The core CPI -- less food and energy -- rose 0.1 percent. The year-on-year rise in total CPI was 2.5 percent, well below the 3.5 percent peak in April.

While the headline inflation rate appears to be moderating, the macroblog notes that the growth rate of the median CPI tracked by the Federal Reserve Bank of Cleveland has been relatively stable, fluctuating by between 0.2 to 0.3 percent each month since the beginning of 2005, or between 2.3 to 2.4 percent on a year-on-year basis.

While the inflation trend in the US appears to be good, that for the euro zone is deteriorating, according to European Central Bank chief economist Otmar Issing, as reported by the macroblog and The Prudent Investor. Euro zone inflation for June has been estimated at 2.1 percent, above the ECB's 2 percent ceiling, thus reducing the likelihood of a cut in interest rates. Germany, the largest economy in the euro zone, reported yesterday that its consumer price index rose 1.8 percent in June from a year earlier, up from 1.6 and 1.7 percent in April and May respectively.

The Prudent Investor also reported that euro zone and EU25 GDP grew by 0.5 percent quarter-on-quarter in the first quarter, improving on the 0.2 and 0.3 percent growth respectively in the previous quarter. However, Europe is expected to slow down for the rest of 2005, especially in the face of high oil prices, although a mitigating factor is that oil-exporting countries may import more from the euro area.