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European Inflation Pressures Rise

Underlying price pressures in the euro zone rose to a three-year high in September, an index compiled by the Economic Cycle Research Institute showed on Friday.

ECRI, which designs indices aimed at predicting business cycles in leading economies, said its Eurozone Future Inflation Gauge (EZFIG) rose to 96.7 in September from an upwardly revised 96.6 in August.

"Euro zone inflationary pressures remain in a moderate uptrend, reaching a three-year high in September," ECRI said. "Thus euro zone inflation is likely to intensify in the months ahead."

The official euro zone inflation rate was 2.5 percent in October, well above the European Central Bank's target ceiling of 2.0 percent.

However, the ECB left interest rates on hold at historic lows of 2.0 percent on Thursday, balancing warnings about the inflationary risks of high oil prices by noting that energy costs are also softening economic growth.

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 eased to 82.6 from a downwardly revised 83.8 in August, but ECRI said that despite the drop, the gauge was still in an uptrend. "Thus German inflation is likely to remain in a cyclical upswing for now."

In France, the index was steady at 101.9 after it was revised up in August. ECRI said the gauge has eased slightly from recent highs. "If the moderation ... persists, this may be an early sign of a cyclical downturn in French inflation."

The Italian index rose to 101.4 from a downwardly revised 101.0. "With the (gauge) in a sharp upward trend since January and actual inflation slowly picking up, Italian inflation is likely to rise further in the coming months," ECRI said.

The Spanish gauge rose sharply to 127.9 from an upwardly revised 123.2 in August. "Despite its latest pop, the (gauge) remains only in a mild uptrend, suggesting that Spanish inflationary pressures are creeping up slowly," ECRI said.

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