ECRI: Worldwide Inflation Continues to Recede

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 |  Includes: EWG, EWI, EWJ, EWP, EWQ, EWU, EWY, FXB, FXE, FXY, IEV
by: Steven Hansen

The Economic Cycle Research Institute (ECRI) has released its September 2008 Future Inflation Gauge (FIG) for Europe, U.K., Japan, and Korea. The value of these FIG indexes lies in their ability to predict cyclical turns in inflation.

This ECRI release comes on the heels of the ECB's decision to reduce borrowing costs to 3.25 percent, which was a relatively small step compared to the Bank of England's surprise decision to slash U.K. rates by 1.5 points to their lowest in more than half a century.

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Eurozone

Eurozone inflationary pressures fell sharply in September, according to the Eurozone Future Inflation Gauge (EZFIG). The EZFIG dropped to 105.4 (1992=100) in September from 108.9 in August, as did its smoothed annualized growth rate to -5.3% from 1.0%. The EZFIG was pulled down by declining inflationary pressures in Germany, France, Italy and Spain.

As anticipated by the earlier upturn in the EZFIG, inflation in the Eurozone had been in a clear cyclical uptrend, but has now turned down following the downturn in the EZFIG. With the EZFIG plunging to a 16-month low in its latest reading, Eurozone inflation is set to fall further.

  • Germany – German inflationary pressures plunged in September. The GFIG plummeted to 107.9 (1992=0) in September from 113.7 in August, as did its smoothed growth rate to -4.7% from 6.9%. The gauge was pulled down by disinflationary moves in measures of materials prices, employment, money supply, loans and orders, offset in part by inflationary moves in measures of interest rates and joblessness. The GFIG dropped in its latest reading to a ten-month low. German inflationary pressures are clearly receding, suggesting that German inflation will continue to decline in the coming months.
  • FranceFrench inflation pressures eased further in September, according to  the French Future Inflation Gauge (FFIG). The FFIG declined to 102.2 (1992=100) in September from 102.4 in August as did its smoothed growth rate to -1.9% from -1.7%. The gauge was pulled down by disinflationary moves in measures of interest rates, input prices and orders, partly offset by an inflationary move in a measure of joblessness. As anticipated by the earlier downturn in the FFIG sliding to a three-and-a-half-year low, French inflation is poised to retreat further.
  • Italy– Italian inflationary pressures fell in September, according to the Italian Future Inflation Gauge (IFIG). The IFIG declined to 101.0 (1992 = 100) in September from 102.0 in August, as did its smoothed annualized growth rate to -3.2% from -1.8%. The gauge was pulled down by disinflationary moves in measures of interest rates, money supply and supplier deliveries. Italian inflation has been declining and reached a ten-month low in September, as anticipated by the earlier downturn in the IFIG, which reached a three-year low in its latest readings. Thus, Italian inflation is likely to ease further in the coming months.
  • Spain– Spanish inflationary pressures dropped in September, according to the Spanish Future Inflation Gauge (ESFIG). The ESFIG fell to 113.5 (1992 = 100) in September from 122.4 in August, as did its growth rate to -17.6% from -7.5%. The gauge was pulled down by disinflationary moves in measures of money supply, producer prices and orders, partly offset by an inflationary move in a measure of interest rates. Spanish inflation has begun to cool off, falling for the second consecutive month, as predicted by the earlier downturn in the ESFIG. Meanwhile, with the ESFIG approaching the 12-year low seen in July, Spanish inflation is likely to ease further in the coming months.

Japan

Japanese inflation pressures eased further in September, according to the Japanese Future Inflation Gauge (JFIG).  The JFIG slipped to 98.3 (1992=100) in September from 98.5 in August, as did its smoothed annualized growth rate to -0.7% from -0.4%, due to disinflationary moves in all available components, except for a measure of joblessness, which moved in an inflationary fashion.

As anticipated by the earlier uptrend in the JFIG, Japanese inflation had been in an upturn since early 2007, but has now declined for the second consecutive month. Meanwhile, with the JFIG now dropping to a 39-month low, Japanese inflation should continue to retreat.

Korea

Korean inflationary pressures continued to ease in September, according to the Korean Future Inflation Gauge (KFIG).  The KFIG slipped to 99.7 (1992=100) in September from 99.8 in August, as did its smoothed annualized growth rate to -2.8% from -2.6%, due to disinflationary moves in measures of interest rates, employment, producer prices and import prices.

Korean inflation has been retreating since the summer, as anticipated by the earlier downturn in the KFIG. Meanwhile, the KFIG is continuing its decline and hit a one-year low in September. Thus, Korean inflation is likely to recede further in the months ahead.

United Kingdom

U.K. inflationary pressures remained at an 11-month low, according to the United Kingdom Future Inflation Gauge (UKFIG). The UKFIG stayed at 109.5 (1992=100) in September, while its smoothed annualized growth rate slipped to -3.9% from -3.8%, as disinflationary moves in measures of raw materials prices, unemployment, money supply, interest rates and vendor performance were neutralized by an inflationary shift in a measure of loans.

Following the downturn in the UKFIG, U.K. inflation has come off June’s 17-year high. With the UKFIG staying in a cyclical downtrend, U.K. inflation should ease further.

Disclosure: none