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Eurozone FIG Remains Weak

A newly launched index shows inflationary pressures for the euro zone remain fairly weak, limiting the need for an early interest rate rise, the Economic Cycle Research Institute (ECRI) said on Friday.

ECRI, which designs indexes aimed at predicting business cycles in leading economies, said its Eurozone Future Inflation Gauge (EZFIG) remained steady at 91.0 in March, unchanged from February and at its lowest level since August 1996.

It said the smoothed annualised growth rate recovered to -7.8 percent from -9.1 percent in February.

"Thus, underlying inflationary pressures remain fairly subdued, even in the face of an imminent economic recovery," the institute said.

ECRI, which has constructed an extensive history for the euro zone gauge, said it reached its last cyclical peak at 108.4 in May 2000, a year before euro zone consumer prices peaked.

"Since then it has been in a downtrend and has only recently begun to flatten out," ECRI said.

"That implies that underlying inflationary pressures are likely to remain subdued in the near term. Under the circumstances, for the euro zone as a whole, there is no pressing need for a near-term rate hike."

However, it showed varying degrees of inflationary pressure in the major euro zone economies included in the gauge.

The institute said its German index edged up from quarter-century lows to 75.0 in March from a revised 74.4 in February. The French index was unchanged at 102.8. The Italian index slipped slightly to 98.6 from 99.2, as did the Spanish index, to 105.4 from 106.4.

The euro zone 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 indexes for the United States, Britain and Japan.

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