Bloomberg News

Euro-Region Producer-Price Inflation Slows as Growth Weakens

February 02, 2012

(Updates with euro in fifth paragraph.)

Feb. 2 (Bloomberg) -- Euro-area producer-price inflation slowed for a third month in December, adding to signs of easing cost pressure across the region as growth weakens.

Factory-gate prices in the 17-nation euro region rose 4.3 percent from a year earlier after increasing a revised 5.4 percent in November, the European Union’s statistics office in Luxembourg said today. That’s in line with the median forecast of 17 economists in a Bloomberg News survey and the weakest gain since October 2010. In the month, prices fell 0.2 percent.

European companies are under pressure to lower costs as the region edges toward a recession and global export demand weakens. Unemployment held at the highest in more than a decade in December. The European Central Bank cut its benchmark interest rate a second time in two months and President Mario Draghi said on Jan. 12 that risks to the inflation outlook are “broadly balanced.”

“Inflation will resume its decline in the coming months,” said Martin van Vliet, an economist at ING Group in Amsterdam. “Although the ECB is now in a wait-and-see stance and looks set to keep rates on hold next week, there remains a chance of additional rate cuts.”

The euro pared losses after the data were released, trading at $1.3154 at 11:05 a.m. in Brussels, down less than 0.1 percent.

Energy Prices

In the 27-nation EU, prices increased 4.9 percent from a year earlier after rising 6.4 percent in November, today’s report showed. Prices fell 0.2 percent in the month.

In Germany, Europe’s largest economy, producer-price inflation slowed to 4 percent from 5.2 percent. French prices increased 4.6 percent, down from an annual 5.6 percent in November, while Italy and Spain also reported a slowdown. In Greece and Portugal, which both received external aid, producer- price inflation also eased in December.

Energy prices at the producer level jumped 9.5 percent from a year earlier after a 12.4 percent gain in November, today’s report showed. The cost of intermediate goods such as car engines and steel advanced 2.8 percent, while capital goods including equipment and machinery were 1.5 percent more expensive. Prices of durable consumer goods rose 2.3 percent.

The ECB, which has forecast inflation to slow this year, will hold its next rate assessment on Feb. 9.

--With assistance from Andrew Clapham in Brussels and Kristian Siedenburg in Vienna. Editors: Patrick G. Henry, Fergal O’Brien

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

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


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