A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Eurozone future inflation gauge falls to 16-mth low

A key gauge of euro zone future inflation pressures staged its biggest one-month fall in nearly seven years in September to a 16-month low, suggesting actual inflation will fall off sharply in coming months.

The New York-based Economic Cycle Research Institute (ECRI) said on Friday that its barometer of future inflation pressures in the euro zone fell 3.5 points in September to 105.4.

That was the biggest one-month fall since October 2001, the month after the Sept. 11 attacks on New York and Washington.

That sharp drop was driven by a 5.8 point plunge in the Germany future inflation gauge, while there were disinflationary falls for France, Italy and Spain as well.

"Inflation in the Eurozone had been in a clear cyclical uptrend, but has now turned down," ECRI said in a release. "With the EZFIG plunging to a 16-month low in its latest reading, Eurozone inflation is set to fall further.

The data are likely to be welcomed by policymakers at the European Central Bank, who slashed interest rates by 50 basis points on Thursday, the second such move in two months, and clearly indicated there are more cuts to come.

But the ECRI figures also show that future inflation pressures peaked in May -- two months before the ECB last raised interest rates, a move they subsequently had to reverse just three months later as the economy lurched into what is likely to be a painful recession.