Euro zone inflation set to ease - report

Euro zone inflationary pressures are high but are tapering off, a forward-looking indicator of inflation released by the Economic Cycle Research Institute showed today.

The Eurozone Future Inflation Gauge, which aims to predict cyclical turns in inflation within the next six to nine months, fell to 107.2 in July from 108.9 in June, its lowest level in nine months, though still not far off May's eight-year high.

That was the second consecutive month the index has declined and suggests that official euro zone inflation, which eased to 3.8 per cent in August, may be finally easing despite remaining close to double the European Central Bank's ceiling.

The index was pulled down by easing inflationary pressures in Germany, Italy and Spain, whose individual index fell to a 12-year low. Price pressures held at a 15-month low in France.

The ECB for now seems more concerned about a prolonged bout of high inflation.

ECB President Jean-Claude Trichet said after the bank left interest rates on hold at 4.25 per cent yesterday that euro zone inflation would not get back to target until 2010.

The ECB's staff revised up its forecast for inflation in 2009 to a midpoint of 2.6 per cent.