ECRI Future Inflation Indexes Indicate That Worldwide Inflation Is Receding

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

Eurozone

Eurozone inflation pressures increased marginally in August but remain in a cyclical downswing. The EZFIG was pushed up by an uptick in Spanish inflation pressures, mostly offset by declining inflationary pressures in Germany, France and Italy. 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 remaining well below May’s eight-year high, Eurozone inflation pressures, while still elevated, are now in an easing mode.

• Germany – The gauge was pulled down by disinflationary moves in measures of material prices and orders, offset in part by inflationary moves in measures of interest rates, joblessness, money supply, loans and import prices. The GFIG fell for the second consecutive month, but stayed close to May’s 26-year high. Thus German inflationary pressures have retreated somewhat, suggesting that German inflation will recede further.
• France – The gauge was pulled down by disinflationary moves in measure of joblessness and input prices, partly offset by inflationary moves in measures of interest rates and orders. The FFIG has eased considerably from its September 2007 high, reaching a 33-month low in its latest reading. Thus, French inflation is set to fall further.
• Italy – The IFIG was pulled down mainly by a disinflationary move in a measure of supplier deliveries, partly offset by inflationary moves in measures of money supply and interest rates. With the IFIG reaching a 34-month low in its latest reading, Italian inflationary pressures remain in a cyclical downturn.
• Spain – The ESFIG was pushed up by inflationary moves in measures of money supply, interest rates and orders, partly offset by a disinflationary move in a measure of producer prices. As anticipated by the earlier upturn in the ESFIG, Spanish inflation had been on the rise since late 2006. Meanwhile, the ESFIG turned down in early 2007 and remains near July’s 12-year low. Thus, Spanish inflation is likely to decline further in the coming months.

Japan

The JFIG edged down as disinflationary moves in measures of joblessness and commodity prices were mostly offset by inflationary moves in measures of money supply, employment and import prices. Japanese inflation had been in an upturn since early 2007, as anticipated by the earlier uptrend in the JFIG, but declined in its latest reading. Meanwhile, the JFIG has now dropped to an 11-month low, pointing to a further pull-back in Japanese inflation.

Korea

The KFIG fell in August due to disinflationary moves in measures of producer prices and import prices, partly offset by inflationary moves in measures of interest rates and employment. As anticipated by the earlier upswing in the KFIG, Korean inflation had been increasing since early 2007. However, the KFIG has decreased for three consecutive months and now stands at an 11-month low. Thus, Korean inflation is likely to continue its recent retreat in the coming months.

United Kingdom

The UKFIG fell due to disinflationary shifts in all available components except measure of interest rates and loans that moved in an inflationary fashion. Following the downturn in the UKFIG, U.K. inflation has begun to ease from June’s 17-year high. With the UKFIG now dropping to a nine-month low, U.K. inflation should recede further.

Canada

The CFIG declined mainly due to a disinflationary move in a measure of commodity prices, mostly offset by inflationary moves in measures of money supply and employment. Canadian inflation has been in a cyclical upswing, and recently hit a five-year high, as anticipated by the earlier upturn in the CFIG. Meanwhile, the CFIG has fallen further from the 19-year high seen in May, suggesting that Canadian inflation is likely to ease from here.

Disclosures: None.
 

Comments

[appone:]

We are on the way to a world wide deflationary period. The commodity boom has ended. Despite massive liquidity infusions from the major central banks, the money supply is shrinking as the credit crunch continues. Great article, it clearly illustrates the change in direction. I believe all the central bank efforts to hyper inflate will eventually fail. Then, Bernanke’s theory that The Great Depression could have been avoided if only more money was thrown at the problem, will be proven wrong. Unfortunately, it appears that the need for credit is so great, and growing, that the central banks are falling behind. For now the problems are primarily contained within banking and corporate borrowing arenas. When city, county and state governments start defaulting for lack of financing, probably sometime in 2009, we will likely face a choice between either “the mother of all bailouts”, or something much more sinister.

2008 Oct 03 06:53 AM

[appone:]

We are on the way to a world wide deflationary period. The commodity boom has ended. Despite massive liquidity infusions from the major central banks, the money supply is shrinking as the credit crunch continues. Great article, it clearly illustrates the change in direction. I believe all the central bank efforts to hyper inflate will eventually fail. Then, Bernanke’s theory that The Great Depression could have been avoided if only more money was thrown at the problem, will be proven wrong. Unfortunately, it appears that the need for credit is so great, and growing, that the central banks are falling behind. For now the problems are primarily contained within banking and corporate borrowing arenas. When city, county and state governments start defaulting for lack of financing, probably sometime in 2009, we will likely face a choice between either “the mother of all bailouts”, or something much more sinister.

2008 Oct 03 06:54 AM

[Elaine Supkis:]

Culture of Life New here!

All this 'deflation' is due to the US and Europe ceasing all talk about bomb, bomb, bombing Iran. So the 'war premium' on Middle Eastern oil is dropping. But Saudi Arabia and the others are not happy with oil dropping back to $21 a barrel.

They have the ability to change that quickly. If not, the Muslim revolutionaries will overthrow the kings and sheikhs. This is what bin Laden wants, by the way.

The global economic slowdown is due to excessive credit which caused a series of classic bubbles identical to ones that were created this same way 100 years ago or more. The hopes of everyone in the world is, the US will go very, very deep into debt to restart world trade which is mostly one-way: to the US consumers.

We, on the other hand, cannot allow this. We took on epic levels of unnecessary debts from 1971 till today. We have run this dual government/trade deficits most of my life and the result is a loss of $10 trillion in trade and a $10 trillion government debt.

This is now being grossly expanded by the minute. Every few days, half a trillion is added to this debt pile! This is because the Federal Reserve really has no more real reserves and the Federal Government is now being run by foreign powers who now own the majority of our national debts.

They want to keep this going, not save our nation. Of course, they are our 'allies' as well as trade rivals like China. But then, Japan and England together hold by far, the most US government debt.

Fixing this means revolutionary changes in how the present world operates. And this means a degree of chaos.

2008 Oct 03 10:18 AM

[whidbey:]

More down to earth is the question of deflation. It is a serious threat in the US and I would guess elsewhere as well. If we see it coming, the Fed has few bullets in its gun, and the Congress is gridlocked until after the election, and for months after, no matter what. It is a vulnerable time and one where policy will be slow. I am concerned that the US is deflation prone, more so than the Fed hoped for.

2008 Oct 03 10:48 AM

[Elaine Supkis:]

When equities and assets lose value, we get 'deflation.' Attempts at increasing this via printing money and deliberately running interest rates below the real inflation rate will only cause repeated waves of inflation/decompressio... that savages all levels of all markets.

What needs fixing is the tremendous imbalance in global trade. The US cannot afford to take on more international trade debts. We have run up trillions in international trade red ink and this is utterly unsustainable. This is at the heart of the banking collapse.

2008 Oct 03 10:54 AM