A steep fall in energy costs brought down euro zone producer prices faster than expected in January, data showed today.

The figures underlined deflationary risks ahead of the European Central Bank's policy meeting on Thursday.

Prices at factory gates in the 18 countries sharing the single currency dropped 0.3% in January compared to December mainly because of a 1.4% fall in costs of energy, the EU's statistics office Eurostat said.

Analysts polled by Reuters expected prices to ease 0.1 percent on the month.

Compared with the same time the previous year, producer prices fell 1.4% compared to market expectations of a 1.3% drop, showing its biggest slump since December 2009 when prices fell 3%.

Producer prices are an indication of inflationary pressures early in the pipeline because unless absorbed by retailers, they eventually translate into consumer inflation, which the European Central Bank wants to keep below, but close to 2%.

The ECB is poised to take action on Thursday to ease lending conditions and drag consumer inflation out of a "danger zone" below 1% year-on-year, that threatens the bloc's fragile recovery. 

Adjusted for energy, producer prices rose 0.1% on the month in January after being flat in December. 

There were only five euro zone countries were prices at factory gates rose in January month-on-month, led by a 1.1% growth in Estonia and followed by the bloc's newest member Latvia showing a 1% increase.

In Europe's largest economy Germany producer prices fell 0.1% in January, after a 0.1% rise in the previous month.

In the bloc's southern periphery, which is slowly regaining competitiveness through years of austerity policies, the picture was mixed: prices in Greece grew 0.3% month-on-month while Spain saw a 1.3% drop in January from December.