Bloomberg News

Euro-Area Producer-Price Inflation Slows for Seventh Month

June 04, 2012

Euro-area producer-price inflation slowed for a seventh month in April, led by lower energy costs, as the deepening economic slump curbed price pressures.

Factory-gate prices in the 17-nation euro region rose 2.6 percent from a year earlier, the weakest annual gain since March 2010, after rising a revised 3.5 percent in March, the European Union’s statistics office in Luxembourg said today. Economists had forecast an increase of 2.7 percent, the median of 18 estimates in a Bloomberg News survey showed. April producer prices were unchanged compared with the prior month.

Crude-oil prices have retreated about 19 percent over the past two months, easing cost pressure on companies as the euro area’s economic slump worsens. With economic confidence at the lowest in 2 1/2 years and unemployment currently at a record 11 percent, the European Central Bank may have to lower interest rates as soon as July, according to economists such as at IHS Global Insight and ING Bank.

Declining oil prices are among indicators suggesting that “inflation risks are easing appreciably and the ECB has increasing scope to take interest rates lower,” said Howard Archer, chief European economist at IHS in London, in an e- mailed note ahead of today’s report. “We now expect the ECB to trim interest rates in the third quarter, with July a very real possibility.”

In Germany, Europe’s largest economy, prices rose 2.4 percent from a year earlier, after increasing 3.4 percent in March, today’s data showed. France, Spain and Italy all reported slowing price growth.

Energy Costs

Energy costs on the producer level advanced 6.8 percent in April from a year earlier after rising 9 percent in the previous month, the report showed. Annual price growth of intermediate goods was 0.6 percent, down from 0.9 percent, and costs of capital goods rose 1.1 percent in the year.

Euro-area inflation at the consumer level slowed to 2.4 percent in May, the weakest since February 2011, and households grew more pessimistic about their ability to save over the coming year. European unemployment reached 11 percent in March and April, the highest since euro-area records began in 1995.

The ECB, which cut its benchmark rate in the fourth quarter to 1 percent, matching a record low, will hold its next monetary assessment on June 6. It will also publish its latest inflation projections for this year and next.

ING said in an e-mailed note on June 1 that the ECB has room to lower borrowing costs given the latest economic data.

“Lower inflation, collapsing confidence indicators and weak monetary data have once again illustrated the dire state (EUGNEMUQ:US) of the euro-zone economy,” it said. Still, the ECB “will wait at least another month.”

The annual producer-price inflation rate for March in the euro area was revised higher to 3.5 percent from 3.3 percent estimated earlier, the statistics office said.

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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