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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Jul 31 2014

Can the Eurozone Veer Away from Deflation?

ECRI has just updated its Eurozone Future Inflation Gauge (EZFIG). The value of this forward-looking gauge lies in its ability to predict cyclical turns in Eurozone inflation.

While European Central Bank (ECB) governor Mario Draghi has deemed sub-1% inflation a “danger zone” that puts the Eurozone at risk of a deflationary spiral, the ECB’s efforts to date have been unable to stem disinflation deep into that range. In July, inflation fell to just 0.4% – the lowest rate since October 2009 – in the first full month following the ECB’s latest rate cut. Thus, there is a growing sense among the consensus that the ECB needs to consider quantitative easing in order to avoid deflation.

The latest update to the EZFIG clarifies the future trajectory of Eurozone inflation, providing insight into whether inflation is nearing bottom or if more drastic action is necessary to avoid deflation.

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