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Euro Inflation Pressures Ease


Underlying price pressures in the euro zone eased in November according to an index published by the Economic Cycle Research Institute on Friday, but the gauge indicated no substantial drop in actual inflation lies ahead.

ECRI, which designs indices aimed at predicting business cycles, said its Eurozone Future Inflation Gauge (EZFIG) had edged lower to 102.8 from October's 104.3.

"The EZFIG declined due to lower inflation pressures in Germany and Spain," ECRI said in a statement, but added: "It remains in an uptrend. Hence actual euro zone inflation is not likely to ease significantly in the months to come."

The latest official data show that inflation in the 12-nation euro bloc slowed to 2.2 percent in December from 2.3 percent in November, but at that level it remains above the European Central Bank's target ceiling of 2 percent.

High inflation -- fuelled largely by a rise in oil and raw material prices during 2005 -- was a key reason behind the ECB's decision to raise interest rates in December to 2.25 percent. If inflationary pressures persist, the bank is likely to follow that up with two or more rate hikes this year, economists say.

The ECRI gauge aims to anticipate cyclical swings in the region's inflation rate and changes in official interest rate policy by measuring underlying inflationary pressures, rather than actual inflation rates.

It is similar to ECRI's inflation indices for the United States, Britain and Japan.

The gauge for Germany, the euro zone's biggest economy, eased to 82.4 in November from a downwardly revised 84.9 the previous month...

"If the (gauge) continues to decline, German inflation will abate further," ECRI said.

The Spanish index also fell, to 184.7 from October's upwardly revised 189.5, but ECRI said this did not necessarily signal a fall in inflation.

"Although (the index) retreated a bit from its October high, it remains in an uptrend. Unless the November decline persists in the months ahead, it is unlikely that Spanish inflation, which remains at a 17-month high, will abate in the near term," it said.

The French index was flat on the month at 102.6, while the Italian gauge inched up to 101.9 in November from 101.7, suggesting that inflation there is likely to rise in coming months.

The euro zone gauge uses a weighted average of ECRI's indices for Germany, France, Italy and Spain...