Consumer climate, ifo, inflation

Consumer sentiment is at rock bottom, the headlines say. Should we buy more cautiously because of it? Many purchasing meetings argue exactly like that – with figures everyone knows and a relationship nobody has tested.

This month Pythia tested that relationship.

The big series, on demand

Pythia now knows five economic series: consumer confidence and willingness to make major purchases from the European consumer survey, the ifo business climate for the economy as a whole and for retail, and inflation from the consumer price index. All of them can be shown on the timeline.

To make them comparable, Pythia converts each series into an index of its own with the same base: the average of the years 2019 to 2023 equals 100. The index sits on the same axis as the shopping-weather index. A tile per series shows the raw value, the change on the previous year and the index, plus the month the latest value comes from.

Measuring instead of overlaying

The obvious approach would be to lay the curves over revenue and look. That is exactly what misleads. Depending on the year you look at, the economy and revenue seem to move sometimes together, sometimes against each other. The reason: every monthly series is dominated by the season, and two series with a long-term trend always look somehow related.

Two curves rising together prove nothing. They just point the same way.

So Pythia compares changes: how has the series changed against the same month last year, and how has the revenue level changed against last year? And it asks whether a series leads – whether its change today says anything about revenue in one, two or three months.

What came out of it

Pythia states the result as a sentence, even when the answer is “no lead”. And the answer was sobering: consumer confidence and the ifo business climate measurably do not explain the revenue level against last year. Willingness to make major purchases shows a very weak relationship. Only inflation shows a negative relationship with about three months’ lead – small and not stable in every year.

That is not a failure. It is an answer. Anyone arguing with consumer confidence in future can check whether it means anything for their own business at all.

Next month: events as objects – why a promotion is more than a dot on the calendar.