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The Economic Cycle Research Institute (ECRI) has released its October 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 follows the ECB's decision for the second month in a row to reduce benchmark interest rates (down 75 basis points to 2.5%), and the Bank of England's rate cut of 100 basis. The rate of the Bank of Japan remains at 0.3% and Bank of Korea at 4.0%.

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Eurozone

Eurozone inflationary pressures plunged in October, according to the Eurozone Future Inflation Gauge (EZFIG).

The EZFIG plummeted to 101.9 (1992=100) in October from 105.3 in September, as did its smoothed annualized growth rate to -10.7% from -5.5%. The EZFIG was pulled down by declining inflationary pressures in Germany, France, Italy and Spain.

As anticipated by the earlier downturn in the EZFIG, inflation in Eurozone has turned down, falling to a 14-month low in its latest reading. With the EZFIG plunging to a 33-month low, having experienced its biggest two-month decline in nearly eight years, Eurozone inflation is set to fall further.

  • Germany – German inflationary pressures plummeted in October, according to ECRI's German Future Inflation Gauge (GFIG). The GFIG dropped to 103.6 (1992=100) in October from 107.9 in September, as did its smoothed growth rate to -12.2% from -4.7%. The gauge was pulled down by disinflationary moves in measures of materials prices, employment, loans, orders and import prices, offset in part by inflationary moves in measures of interest rates and money supply. As anticipated by the earlier downturn in the GFIG, German inflation has been retreating, and hit a 26-month low in November. Meanwhile, with the GFIG continuing its decline, German inflation is likely to fall further in the coming months.
  • FranceFrench inflation pressures fell further in October, according to the French Future Inflation Gauge (FFIG). The FFIG declined to 101.1 (1992=100) in October from 102.0 in September, as did its smoothed growth rate to -3.4% from -2.1%. The gauge was pulled down by disinflationary moves in all available components. French inflation has fallen sharply from its mid-year highs, as anticipated by the earlier steep decline in the FFIG, which fell to a five-year low in October. Thus, French inflation pressures are now in full retreat.
  • Italy– Italian inflationary pressures dropped sharply in October, according to the Italian Future Inflation Gauge (IFIG). The IFIG declined to 99.7 (1992=100) in October from 101.7 in September, as did its smoothed annualized growth rate to -5.3% from -2.0%. The gauge was pulled down mainly by disinflationary moves in measures of interest rates and supplier deliveries, partly offset by an inflationary move in a measure of money supply. As anticipated by the earlier cyclical downturn in the IFIG, Italian inflation has declined to an 11-month low. Meanwhile, the IFIG plunged in October to a four-year low, maintaining its steep cyclical downturn. Thus, Italian inflation is likely to continue to fall further from its mid-year highs.
  • Spain– Spanish inflationary pressures nose-dived in October, according to ECRI’s Spanish Future Inflation Gauge (ESFIG). The ESFIG plummeted to 101.8 (1992=100) in October from 111.0 in September, as did its growth rate to -29.9% from -20.9%. The gauge 120 .0 was pulled down by disinflationary moves in measures of money supply and producer prices, partly offset by inflationary moves in measures of interest rates and orders As anticipated by the earlier downturn in the ESFIG, Spanish inflation has fallen sharply and hit its lowest reading in almost two years. Meanwhile, the ESFIG fell to a 12-year low in October, indicating that Spanish inflation will continue to recede in the months ahead.

Japan

Japanese inflationary pressures declined again in October, according to the Japanese Future Inflation Gauge (JFIG). The JFIG edged down to 98.0 (1992=100) in October from 98.2 in September, as did its smoothed annualized growth rate to -1.1% from -0.8%, due to disinflationary moves in measures of money supply, commodity prices and import prices, mostly offset by inflationary moves in measures of labor market conditions.

Japanese inflation has now declined for a third consecutive month, as anticipated by the earlier downturn in the JFIG. Meanwhile, with the JFIG now dropping to a three-and-a-half year low, Japanese inflation will continue to wane.

Korea

Korean inflationary pressures faded further in October, according to the Korean Future Inflation Gauge (KFIG). The KFIG fell to 99.3 (1992=100) in October from 99.6 in September, as did its smoothed annualized growth rate to -3.6% from -3.0%, due to disinflationary moves in measures of employment and producer prices, partly offset by inflationary moves in measures of interest rates and import prices.

As predicted by the earlier downturn in the KFIG, Korean inflation has been easing and hit a nine-month low in November. Meanwhile, the KFIG reached a 14-month low in October, continuing its sharp decline. Thus, Korean inflation is set to ebb further in the coming months.

United Kingdom

U.K. inflationary pressures remain in a steep downturn, according to the United Kingdom Future Inflation Gauge (UKFIG). The UKFIG dropped to 105.1 (1992=100) in October from 108.1 in September, as did its smoothed annualized growth rate to -10.9% from -6.3%, due to disinflationary moves in measures of raw materials prices, unemployment, money supply, interest rates and vendor performance, partly offset by an inflationary move in a measure of loans.

U.K. inflation has ebbed following the downturn in the UKFIG, which has now plummeted to a 56-month low. Thus, U.K. inflation is likely to decline further.

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Source: ECRI Future Inflation Indexes: Worldwide Inflation Plunge Continues