Euro zone inflation pressures ease - report

Underlying price pressures in the euro zone eased in November according to an index published by the Economic Cycle Research …

Underlying price pressures in the euro zone eased in November according to an index published by the Economic Cycle Research Institute (ECRI).

But the gauge indicated no substantial drop in actual inflation lies ahead.

ECRI, which designs indices aimed at predicting business cycles, said its Eurozone Future Inflation Gauge (EZFIG) had edged lower to 102.8 from October's 104.3.

"The EZFIG declined due to lower inflation pressures in Germany and Spain," ECRI said in a statement, but added: "It remains in an uptrend. Hence actual euro zone inflation is not likely to ease significantly in the months to come."

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The latest official data show that inflation in the 12-nation euro bloc slowed to 2.2 per cent in December from 2.3 per cent in November, but at that level it remains above the European Central Bank's target ceiling of 2 percent.

High inflation - fuelled largely by a rise in oil and raw material prices during 2005 - was a key reason behind the ECB's decision to raise interest rates in December to 2.25 per cent.

If inflationary pressures persist, the bank is likely to follow that up with two or more rate hikes this year, economists say.

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.

The gauge for Germany, the euro zone's biggest economy, eased to 82.4 in November from a downwardly revised 84.9 the previous month, thanks in part to lower materials prices.