ECRI: Monthly Future Inflation Gauge Readings

[HenryTo]

ECRI's future inflation gauge now at a five-year high. Courtesy of MplsBear at wallstreetbear.com:
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U.S. inflation pressures rose in Aug - report
Fri Sep 2, 2005 09:39 AM ET

NEW YORK, Sept 2 (Reuters) - Higher interest rates and input prices, an increase in loan activity and stronger job growth all pushed U.S. inflation higher in August, a report said on Friday.

However, the rising inflation pressure was partly offset by supplier delivery times, the Economic Cycle Research Institute said.

ECRI's Future Inflation Gauge, which is designed to anticipate cyclical swings in the rate of inflation, rose to 121.1 in August from a upwardly revised 119.7 in July, the research group said.

The index's annualized growth rate, which smooths out monthly fluctuations, climbed to 4.1 percent from an upwardly revised 2.3 percent.

"The U.S. future inflation gauge is now at a five-year high, suggesting that cyclical inflation pressures in the U.S. are intensifying," said Lakshman Achuthan, managing director for the ECRI.

[HenryTo]

FYI: Market is pricing in a total 75 basis point hike by the end of this year for the ECB:
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Euro Zone Inflation Pressures Up
06/02/2006
LONDON, June 2 (Reuters) - Inflation pressure struck a 5-1/2 year high in Europe in April and is steadily becoming a fact of life in Japan after many years when deflation was the problem, the ECRI institute said on Friday.

Increasing inflation in Germany and France pushed underlying price pressures in the euro zone to 5-1/2 year highs, an index from the Economic Cycle Research Institute showed.

That will do little to blunt the ECB's determination to hike euro zone interest rates when it meets next week.

Official data from the European Union confirmed pipeline inflation pressures were evident.

Euro zone producer prices were up 0.8 percent month-on-month in April and 5.4 percent on the year, fuelled by high energy prices, according to Friday figures which analysts said added to the case for a near-term interest rate rise.

The ECRI, which tries to flag turns in the economy via tailormade indices, said its Japan index showed inflation pressures there remained flat in April but near an eight-year high and likely to rise further.

The institute's Eurozone Future Inflation Gauge (EZFIG) rose to 103.4 in April from March's 102.2.

"With the EZFIG rising to a 5-1/2 year high in its latest reading, euro zone inflation pressures are clearly in a cyclical upswing," ECRI said.

For Japan, the equivalent index was unchanged at 98.6, down from the eight-year peak of 98.9 struck in February. "Japanese inflation pressures remain elevated," the institute said.

Core consumer prices in Japan have risen for six consecutive months and show the economy is finally escaping seven years of deflation. The core CPI, which excludes fresh food, rose by 0.5 percent in April, matching the fastest pace in eight years.

ECB POISED TO RAISE RATES

An official report earlier this week showed annual euro zone inflation at a higher-than-expected 2.5 percent in May.

The European Central Bank is expected by almost everyone in the markets to raise interest rates by 25 basis points at a meeting in Madrid on June 8.

But the recent data have increased the probability that the bank may raise rates more aggressively, perhaps by half a percentage point in June, some economists are now saying.

The producer price data did little to counter that view.

"The figure could increase the speculation that people would be calling for a 50 basis point hike, but we stick to our view that a 25 bps outcome is more likely," said Jodie Saul, economist at CIBC World Markets.

The ECRI gauge endeavours to anticipate cyclical swings in regional inflation rates and changes in official interest rate policy by measuring underlying inflationary pressures, rather than actual inflation rates.

The euro zone gauge uses a weighted average of ECRI indices for Germany, France, Italy and Spain, whose components comprise bond yields, loans, raw material prices, employment and unemployment, money supply and business activity.

The German index jumped to 91.5 from 87.2 in March, whilst the French one rose to 103.5 from March's 103.1.

In contrast, the gauge for Italy dipped to 101.2 from 101.5 and the Spanish index eased to 154.3 from 159.8.

"The (German) index was pushed up by inflationary moves in measures of materials prices, money supply, orders and loans, partly offset by disinflationary moves in measures of interest rates and import prices," ECRI said.

In Japan, the authorities recently declared an end to their long-standing policy of ultra-loose credit conditions to fend off deflation and markets are eager to see when rate may rise.

[HenryTo]

Some self-promotion from the ECRI, but the gist from the ECRI is this: We are in a cyclical inflationary cycle in the midst of a secular disinflationary cycle.
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360 Degrees: Inflation
05/26/2006

Editor's note: This edition of "360 Degrees" examines the debate over inflation. After Wednesday morning's hotter-than-expected CPI report, there was immediate discussion about whether the incipient inflation was already priced into the market.

Data Point; Steven Smith 5/17/06 8:32 AM EDT

The CPI rose 0.6%, greater than the 0.5% increase expected.

The core rate rose 0.3%, also a larger increase than the 0.2% rise forecast. Stock index futures have turned quickly negative.

Position: None

Inflation; Michael Comeau 5/17/06 9:04 AM EDT

"Four dollars? You know what four dollars buys today? It don't even buy three dollars!" -- Frank Manero

Given today's inflation data, I'll throw a question out: Is inflation already priced into the market? We've known for quite a while that the government inflation measures are pretty goofy, and plenty of market pundits/strategists have insisted that prices are rising much faster than the government says.

Position: None

Inflation; Aaron Task 5/17/06 9:14 AM EDT

Michael, my very unscientific survey data suggest the consensus view on Wall Street is that inflation is not a problem (repeat: not a problem). How else to explain the eagerness among market participants to embrace the "one and done" view for the past several FOMC meetings?

It seems to me that many are focusing on where inflation isn't showing up: wages (which is the biggest input, though creeping higher of late), textiles, electronics, etc.

And in all seriousness, I think the key question -- which I've put to Anirvan Banerji off-line -- is whether we're in a cyclical inflationary cycle in the midst of a secular deflationary cycle.

Position: Now asking in public forum

Inflation; Anirvan Banerji 5/17/06 10:04 AM EDT

Yes, Aaron, we're in a cyclical inflationary cycle in the midst of a secular disinflationary cycle (deflationary in some sectors) -- but that cyclical upturn in inflation started a couple of years ago. The real question is not where we are, but where we're headed, and for an answer, it's no good looking at coincident measures of inflation, whether based on the CPI, core CPI, or core PCE deflator. This is why we look at ECRI's forward-looking Future Inflation Gauge, or FIG, which anticipated the cyclical upturn in inflation and kept rising through last fall. It has eased off a bit since then, but I'm keeping a close eye on it to gauge whether the easing in underlying inflation pressures is real and sustained.

Position: None

[HenryTo]

FYI - the Fed still has not finished its work yet. And I don't believe it will until they crack the CRB Index, emerging markets, or the S&P 500:
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NEW YORK, March 10 (Reuters) - Overall U.S. inflation pressures fell in February due to measures of vendor performance and jobs mostly, a report said.

These moves were offset by inflationary moves in measures of joblessness, commodity prices and interest rates.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge, or USFIG, which is designed to anticipate cyclical swings in the rate of inflation, edged down to 123.1 in February from an an upwardly revised 123.5 month.

"The USFIG remains below October's five-and-a-half-year high," the report said.

The index's annualized growth rate, which smoothes out monthly fluctuations, fell to 3.5 percent from an upwardly revised 4.6 percent in December. The growth rate was originally pegged at 3.9.

"Despite a modest dip, the USFIG is not far below October's five-and-a-half-year high. Thus, it is still premature to conclude that a cyclical downswing in underlying inflation pressures is already underway," according to Lakshman Achuthan, managing director for ECRI.

[HenryTo]

FYI: We are definitely not out of the woods yet. Another Fed Funds increase is certain in March and there is a 58% chance we will get another one in May or June. Could Bernanke even pull a "Greenspan surprise" by hiking the Fed Funds rate between meetings? We will see. Either way, I would not be long equities right now.
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U.S. inflation pressures rise in Jan - survey
Fri Feb 3, 2006 9:40 AM ET

NEW YORK, Feb 3 (Reuters) - U.S. inflation pressures rose in January, boosted by gauges of vendor performance, input prices, jobs and interest rates, a report showed on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge, or USFIG, which is designed to anticipate cyclical swings in the rate of inflation, rose to 122.9 from 121.3 in December.

"The USFIG remains below October's five-and-a-half-year high," the report said, adding that the slight rise was partially offset by a "disinflationary move in a measure of loans." It did not further explain this measure.

October's reading was 124.7. The index's annualized growth rate, which smoothes out monthly fluctuations, rose to 3.9 percent from an upwardly
revised 1.7 percent in December.

"However, in the light of its latest uptick, it is too soon to declare that a cyclical downswing in underlying inflation pressures has already begun," said Lakshman Achuthan, managing director for ECRI.

[HenryTo]

ECRI inflation gauge fell significantly in November, but according to the ECRI, we're still not out of the woods yet. My guess is that any disinflationary trends will not be confirmed until there is a significant drop in gold, silver, and base metals (which this author is currently expecting):
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U.S. inflation pressures fall in Nov - survey
Fri Dec 2, 2005 9:41 AM ET

NEW YORK, Dec 2 (Reuters) - U.S. inflation pressures slipped in November, influenced by data on jobs, loans, input prices and vendor performance, according to a report on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge, which is designed to anticipate cyclical swings in the rate of inflation, fell to 121.6 in November from an upwardly revised 124.3 in October.

The index's annualized growth rate, which smoothes out monthly fluctuations, fell to 3.1 percent from an upwardly revised 8.2 percent in October.

"The USFIG has come off from October's five-and-a-half-year high, but underlying inflation pressures are still elevated," Lakshman Achuthan, managing director for ECRI, said in a report.

"However, if the USFIG keeps falling, there should be a reversal of the cyclical upswing in inflation pressures that began at the end of 2003," the report said.

[HenryTo]

ECRI Future Inflation Gauge now at an absolute level of 124.0.

The annual growth rate is now at 7.7% - another new five-year high.

The Fed Funds futures is now pricing for a 90% chance of a Fed funds rate of 4.50% by January of next year.

[HenryTo]

ECRI's inflation gauge for September is now at 6.6% - the highest reading since June 2000. Interestingly, however, the Fed stopped their rate hikes at precisely that time in the last tightening cycle - so the ECRI's reading is not the be-all and end-all signal that some investors out there are proclaiming. My guess is that the Fed will continue hiking throughout this year - and then reaccess if commodity prices continue to remain high and if the U.S. stock market does not tank. If that is not the case, then I highly believe that the Fed will stop at 4.25%.
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ECRI: Inflation Gauge at Highest in Over 5 Years
Friday, October 07, 2005

NEW YORK — Inflation pressures climbed in September to their highest in over five years, according to a report on Friday that suggested the Federal Reserve (search) was right to remain vigilant over price increases.

The Economic Cycle Research Institute (search) said its Future Inflation Gauge (search) rose to 122.7 last month, its highest since June 2000, the tail end of the late 1990s economic boom.

August's reading was revised down to 120.7.

Over the past few weeks, Fed officials have gone out of their way to remind investors and consumers that they must continue to raise interest rates to ward off inflation.

The survey's annualized growth rate, which smoothes out month-to-month variance, jumped to 6.6 percent from 3.7 percent.

"If the Fed continues to approach policy as an exercise in managing risks, the clear danger remains inflation and not recession," said Lakshman Achuthan, managing director at ECRI, an independent research group.

[Gizmo]

Inflation is critical to the Fed and the Fed is critical to the stock market.

Thanks for that important post Henry.
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Gizmo