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Friday, February 06, 2009

ECRI's FIG Shows Inflation Pressure at Fresh 50-Year Low

The Economic Cycle Research Institute, a New York-based independent forecasting group known as ECRI, said inflation pressure is at a 50-year low. (More about ECRI.)

Underlying inflationary pressures dropped further in January 2009, according to ECRI's U.S. Future Inflation Gauge (USFIG). The value of the USFIG lies in its ability to measure underlying inflationary pressures and thereby predict turning points in the U.S. inflation cycle.

The USFIG declined to 81.8 (1992=100) in January from 84.5 in December, while its smoothed annualized growth rate (charted below) slipped to -38.8% from -37.9%. The gauge was pulled down in January mainly by negative contributions from measures of loans, vendor performance, unemployment and job growth, partly offset by a positive contribution from a measure of commodity prices.

Commenting on the data, Lakshman Achuthan, Managing Directors ECRI said
"With the USFIG locked in a clear cyclical downswing, U.S. inflation pressures areessentially non-existent. Rather, there are continued downward pressures on U.S. consumer prices."
Click to see larger FIG Growth Rate chart

The very low US-FIG means means the Federal Reserve can keep the Fed Funds rate low since inflation pressure is still in a cyclical decline.

The Fed Funds target rate is currently a range between zero and 0.25%.

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