Cheap energy pulls down euro zone producer prices in July

Tuesday 02 September 2014 12.58
More pressure on ECB as producer prices drop in July
More pressure on ECB as producer prices drop in July

A drop in highly volatile energy prices depressed euro zone producer prices in July as expected. 

The fall underlined disinflationary pressures in the euro zone ahead of the European Central Bank's monetary policy meeting on Thursday. 

Prices at factory gates in the 18 countries sharing the euro fell as anticipated by 0.1% in July from June and dropped 1.1% on the year, new figures from the the EU's statistics office Eurostat showed today. 

The annual drop was the steepest since April's 1.2% decline.

Producer prices are an early indication of price trends. Unless their fluctuations are absorbed by retailers, they eventually translate into consumer inflation or deflation. 

Both the monthly and the annual declines were influenced by a 0.6% and 3.5% drop respectively in the costs of energy, data showed. 

Prices in all other sectors, such as durable and non-durable consumer goods, were flat in July when compared with June. 

The ECB meets on Thursday, and faces a dilemma on how to respond to vanishing inflation in the €9.6 trillion economy whose recovery unexpectedly stalled in the second quarter, only two months after an interest rate cut in June. 

A majority of economists expect the ECB to stay on hold in September and wait for effects of its last rate cut to kick in, including targeted longer-term refinancing operations aimed to boost bank landing. 

Producer prices in July, when compared with the same month last year, rose only in three euro zone countries - Estonia, Ireland and Latvia and were flat in the twice bailed-out Greece.

Today's figures show that the largest year-on-year drop was recorded in Belgium with a 5.7% decline, followed by Slovakia's 2.9% annual fall.