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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.
 

Source: ECRI Future Inflation Indexes Indicate That Worldwide Inflation Is Receding