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U.S. Future Inflation Gauge Drops Sharply

U.S. inflation pressures reached a 31 month-low in December... a report said on Friday, paving the way to further interest rate cuts by the U.S. Federal Reserve.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, fell to 117.1 in December from 119.8 in November, revised from 119.7. The figure has not been this low since May 2005, when it hit 116.4.

"The fact that average hourly earnings growth rose in December is irrelevant in gauging the future direction of inflation," said Lakshman Achuthan, managing director at ECRI.

"With the USFIG falling to a 31-month low, forward looking inflation pressures are plummeting. Therefore, policymakers need not be concerned about runaway inflation in 2008."

The FIG's annualized growth rate, which smooths out monthly fluctuations, fell to minus 4.6 percent from minus 0.7 in November revised up from negative 0.9.