Composite leading indicators of underlying inflation for seven EU countries

This paper presents short- and long-term composite leading indicators (CLIs ) of underlying inflation for seven EU countries, namely Belgium, Germany, France, Italy, the Netherlands, Sweden and the UK. CLI and CPI reference se ries are calculated in terms of both growth rates and in deviations from it s trend. The composite leading indicators are based on leading basic series , such as sources of inflation, series containing information on inflation expectations and prices of intermediate goods and services. Neftci's decisi on rule approach has been applied to transfer movements in the CLIs into a measure of the probability of a cyclical turning point, which enables the s creening out of false turning point predictions. Finally, CLIs have been us ed to analyse the international coherence of price cycles. The forecast per formance of CLIs of inflation over the past raises hope that this forecast instrument can be useful in predicting future price movements. Copyright (C ) 1999 John Wiley & Sons, Ltd.