Bloomberg News

Europe Producer-Price Inflation Slows as Energy Increases Ease

October 04, 2011

Oct. 4 (Bloomberg) -- European producer-price inflation weakened in August as energy-cost increases eased on slower economic growth amid the sovereign-debt crisis.

Factory-gate prices in the 17-nation euro region rose 5.9 percent from a year earlier after a 6.1 percent increase in July, the European Union’s statistics office in Luxembourg said today. Economists had projected a gain of 5.8 percent, according to the median of 19 estimates in a Bloomberg News survey. August producer prices declined 0.1 percent from July, when they gained 0.5 percent on the month.

Crude-oil prices have dropped 27 percent in the past six months as Europe’s debt crisis damps economic growth. Economists at Royal Bank of Scotland Group Plc and Barclays Capital expect the European Central Bank to reverse this year’s two interest- rate increases to give the economy, already hobbled by austerity measures and waning investor confidence, some breathing space.

“Producer-price inflation will continue to trend downward as companies face increasing competition over dwindling orders,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “It remains above its long-run average, so the ECB may hesitate to cut rates immediately.”

Euro-area inflation at the consumer level unexpectedly accelerated in September to the fastest in almost three years, complicating the ECB’s task in fighting the fiscal crisis. The Frankfurt-based central bank, which has increased its lending rate by 0.5 percentage points twice this year in an effort to curb inflation, holds its next rate-setting meeting on Oct. 6.

Economic confidence in Europe slumped more than economists forecast last month and services and manufacturing industries contracted for a second straight month.

Energy prices at the producer level rose 11.5 percent from a year earlier in August, compared with a gain of 11.9 percent in the prior month, today’s report showed. The cost of intermediate goods such as car engines and steel advanced 5.7 percent, while capital goods including equipment and machinery were 1.6 percent more expensive. Prices of durable consumer goods rose 2 percent.

--With assistance from Kristian Siedenburg in Budapest. Editors: Jones Hayden, Alan Crawford

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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