Eurozone PPI Continues To Fall In October

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Eurozone producer prices dropped for a tenth consecutive month in October on an annual basis as energy prices plunged notably.

The producer price index fell 6.7% year-on-year in October after falling a revised 7.6% in September, the Eurostat said Wednesday. Economists had expected a 6.8% decline. On a monthly basis, the PPI rose 0.2% in October following a decline of 0.4% in September.

Compared to a year earlier, producer prices for total industry excluding construction and energy fell 3.9% in October and those for intermediate goods dropped 6.4%. The PPI fell 14.4% for energy and 0.7% for capital goods. The index dropped 3.3% for non-durable goods, while rose 0.4% for durable consumer goods.

As rising unemployment continue to reduce households' purchasing power, producers are unable to raise their prices. In addition, a strong euro is dampening exports of manufactured products, again a constraint for producers to increase prices.

Yesterday, the statistical agency said the seasonally adjusted number of unemployed stood at 22.5 million in October, while the jobless rate stood stable at 9.8%. On the same day, survey data from Markit Economics showed that Eurozone manufacturing activity expanded for a second month in November.

The PPI for EU27 rose 0.2% month-on-month, while dropped 5.8% annually. Among member states for which data were available, Lithuania recorded the largest annual fall in the PPI followed by the Netherlands and Latvia. Meanwhile, Slovenia, Sweden and Ireland marked the lowest declines.

A preliminary estimate showed that Eurozone inflation turned positive in November for the first time in six months. The consumer price index rose 0.6% year-on-year after falling by 0.1% in October. The European Central Bank aims to keep inflation rates below, but close to 2% over the medium term.

Eurozone inflation is not expected to rise significantly in 2010, ECB Governing Council member Ewald Nowotny said in an interview last week. The central banker said excess liquidity in the financial system will be removed once the ECB's non-standard policies expire.

However, given the latest improvements in the economy, the ECB is likely to hold its key interest at a record low of 1% on Thursday for a seventh consecutive month. The central bank is widely expected to start exiting stimulus measures this month. In the third quarter, the Eurozone economy emerged out of its worst recession by expanding 0.4% sequentially.

Eurozone producer prices dropped for a tenth consecutive month in October on an annual basis as energy prices plunged notably. (Market News Provided by RTTNews)