ECRI: International Inflation Pressures Continue to Recede

The Economic Cycle Research Institute ((ECRI)) has released its April 2009 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.

The evaporation of inflationary pressures as demonstrated by ECRI’s indexes is continuing to allow major economies further reductions in interest rates and continue quantitative easing.

ECRI Gauges	Benchmark Interest Rate	April Level	March Level
Eurozone EZFIG	1.0%	82.4	84.1
German GFIG		73.0	75.5
French FFIG		98.8	98.9
Italian IFIG		95.7	96.0
Spanish ESFIG		47.4	53.6
Japan JFIG	0.1%	96.7	96.8
Korea KFIG	2.0%	95.6	95.8
United Kingdom UKFIG	0.5%	99.2	99.7

Note: 1992 = 100

ECRI’s Eurozone Future Inflation Gauge (EZFIG) continued its decline in April. The EZFIG fell to 82.4 (1992=100) in April from 84.1 in March, though its smoothed annualized growth rate remained unchanged at -29.4%. The EZFIG was pulled down mainly by falling inflationary pressures in Germany and Spain. As anticipated by the earlier plunge in the EZFIG, consumer prices in the Eurozone have been dropping since last fall. Meanwhile, with the EZFIG hitting a new historical low in its latest reading, consumer prices in the Eurozone are likely to continue their retreat in the coming months.

German inflationary pressures declined further in April, according to ECRI's German Future Inflation Gauge (GFIG). The GFIG fell to 73.0 (1992=100) in April from 75.5 in March, as its smoothed growth rate slipped to -44.2% from -44.0%. The gauge was pulled down mainly by a negative contribution from a measure of loans. German inflation has plunged dramatically, as anticipated by the earlier drop in the GFIG, which fell in April to a seven-year low. Thus, German consumer prices are likely to recede further in the coming months.

ECRI’s French Future Inflation Gauge (FFIG) remained in a steep cyclical downturn in April. The FFIG declined to 98.8 (1992=100) in April from 98.9 in March, though its smoothed growth rate ticked up to -4.4% from -4.9%. The gauge was pulled down mainly by a negative contribution from a measure of joblessness, offset in part by a positive contribution from a measure of raw materials prices. As anticipated by the earlier steep drop in the FFIG, French inflation has fallen off sharply. Meanwhile, French consumer prices remain below the highs of last summer and, with the FFIG dropping to a record low, they are likely to stay in a downtrend.

Italian inflationary pressures fell once again in April, according to ECRI’s Italian Future Inflation Gauge (IFIG). The IFIG dipped to 95.7 (1992=100) in April from 96.0 in March, though its smoothed annualized growth rate edged up to -7.8% from -8.4%. The gauge was pulled down by a negative contribution from a measure of supplier deliveries, mostly offset by a positive contribution from a measure of money supply. Italian inflation has been retreating sharply since mid-2008, as predicted by the earlier drop in the IFIG, which declined in April to its lowest level in more than a decade. Thus, Italian inflation is far from being a near-term concern.

ECRI’s Spanish Future Inflation Gauge (ESFIG) dropped in April. The ESFIG fell to 47.4 (1992=100) in April from 53.6 in March, as did its growth rate to -70.0% from -66.5%. The gauge was pulled down mainly by a negative contribution from a measure of money supply.As predicted by the earlier plunge in the ESFIG, Spanish consumer prices have fallen sharply since last summer. Meanwhile, the ESFIG plummeted in April to a fresh historical low, suggesting that Spanish prices will continue to decline in the coming months.

ECRI’s Japanese Future Inflation Gauge (JFIG) continues to fall. The JFIG slipped to 96.7 (1992=100) in April from 96.8 in March, though its smoothed annualized growth rate edged up to -2.5% from -2.6%, mainly due to a negative contribution from a measure of joblessness, mostly offset by a positive contribution from a measure of commodity prices.
As anticipated by the earlier downturn in the JFIG, Japanese inflation has plunged since last summer, with consumer prices easing since last July. Meanwhile, with the JFIG dropping to a fresh historical low, Japanese consumer prices are likely to stay in a downtrend.

Korean inflationary pressures eased in April, according to ECRI's Korean Future Inflation Gauge (KFIG). The KFIG edged down to 95.6 (1992=100) in April from 95.8 in March, though its smoothed annualized growth rate rose to -6.0% from -6.4%, due mainly to a disinflationary move in a measure of import prices. As predicted by the earlier plunge in the KFIG, Korean inflation has dropped sharply since last summer. Meanwhile, with the KFIG falling again in April, edging closer to the ten-year low seen in January, inflationary pressures remain dormant.

ECRI's United Kingdom Future Inflation Gauge (UKFIG) inched down in April. The UKFIG slipped to 99.2 (1992=100) in April from 99.7 in March, though its smoothed annualized growth rate edged up to -12.3% from -13.2%. The gauge was pulled down mainly by a negative contribution from a measure of loans. U.K. consumer prices declined further in April. This was anticipated by the earlier drop in the UKFIG, which remains in a sharp cyclical downturn. Thus, consumer prices in the U.K. should continue their easing trend in the months ahead.

Disclosures: None.

Comments

[whidbey:]

Deflation and a slowing of global trade is the threat here.

This data suggests US trade will have difficulty in returning to levels anything like 2007 except possibly in the case of agricultural goods.

I suspect this is bad news across the board.

Jun 05 12:48 PM

[Living4Divi...:]

Nice post Steve. You put a lot of work into this article. Again, I don't know how you find the time.

Question: The charts say "Future Inflation Gauge" but the dates peter out in mar/may. How is mar/may considered the future? that is, how do you interpret these charts?

Jun 10 12:01 PM

[whidbey:]

Try the ECRI site. The forecasts come from a pattern of historical cycles that go back a number of months, but which are extrapolated for a forecast. They have exceptional accuracy, but are expensive. We use their work plus technical analysis and make some good long run trades.


On Jun 10 12:01 PM Living4Dividends wrote:

> Nice post Steve. You put a lot of work into this article. Again,
> I don't know how you find the time.
>
> Question: The charts say "Future Inflation Gauge" but the dates peter
> out in mar/may. How is mar/may considered the future? that is, how
> do you interpret these charts?

Jun 15 04:16 PM