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Euro Zone Inflation Pressures to Remain Elevated

Underlying price pressures in the euro zone rose in December according to an index published by the Economic Cycle Research Institute on Friday, suggesting that inflation will remain elevated in coming months.

ECRI, which designs indices aimed at predicting business cycles, said its Eurozone Future Inflation Gauge (EZFIG) increased to 103.2 from November's downwardly revised 102.4.

"The EZFIG remains in an upward trend, suggesting that euro zone inflation will not come down significantly in the months ahead," ECRI said in a statement.

Official euro zone inflation data for January will be released at 1000 GMT on Friday and is expected to rise to 2.4 percent year-on-year from December's 2.2 percent. That would move it further above the European Central Bank's target ceiling of 2.0 percent.

Persistently high inflation -- fuelled largely by a rise in oil and metal prices -- is one reason why the European Central Bank raised interest rates to 2.25 percent in December and is expected to hike again in March.

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

In December, the overall euro zone gauge was pushed up by increased inflation pressures in France and Spain.

The French index inched up to 102.8 from 102.6, whilst the Spanish one jumped to 187.7 from November's downwardly revised 179.1.

By contrast, the gauge for Germany eased to 82.7 in December from an upwardly revised 82.9 the previous month.

"The (German index) has fallen for the third consecutive month, suggesting that German inflation pressures are ebbing further," ECRI said.

The Italian gauge inched down to 101.2 in December from a downwardly revised 101.7, but remained in a cyclical uptrend suggesting that inflation there is unlikely to fall soon.