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.

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Mar 06 2014

ECB Dismisses French Disinflation Worries

ECRI has just updated its French Future Inflation Gauge (FRFIG), which has remained subdued for some time now. The value of this forward-looking gauge lies in its ability to predict cyclical turns in French inflation.

In January, French consumer prices fell from the month before, missing expectations for annual growth – rising just 0.8% – despite boosts from a January increase in the value-added tax and a favorable reweighting of the CPI. Still, the European Central Bank (ECB) remains unconcerned about low inflation and deflation, dismissing them as issues relevant only for periphery economies, leading the ECB to hold rates flat amid calls for stimulus. Yet, with negative month-over-month CPI growth in six of the past 12 months, disinflation from already low levels appears to be an increasing problem in the core, French economy.

The latest update to the FRFIG clarifies the future trajectory of French inflation, indicating whether French CPI growth will converge toward upbeat ECB expectations or experience further disinflation.

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