Eurozone Producer Prices Continue To Fall In December

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Eurozone producer prices continued to decline in December on an annual basis, suggesting that underlying inflationary pressures remain muted in the region.

The producer prices index, or PPI, fell 2.9% year-on-year in December after a 4.4% drop in November, data released by Eurostat showed Tuesday. Economists had forecast a 3% decline for December.

"December's Eurozone producer price inflation figures confirm that pipeline price pressures remain very subdued," said Ben May, European economist at Capital Economics. According to the economist, latest figures strengthened the view that Eurozone consumer price inflation will remain much weaker than in the U.S. and U.K.

A flash report from the Eurostat showed that consumer price annual inflation stood at 1% in January, slightly up from 0.9% recorded in December. The European Central Bank, set to announce its monetary policy decision on February 4, aims to keep inflation below, but close to 2% over the medium term.

"December's producer price figures serve as a timely reminder that that pipeline price pressures in the Eurozone remain very subdued, and strengthen the case for the ECB to keep rates firmly on hold this week and in most of 2010," ING economist Martin van Vliet said.

Details of today's PPI report showed that producer prices in total industry excluding the energy sector decreased 2.3% year-on-year. Prices in the energy sector fell 5.6% and those for intermediate goods production declined 3.4%. Producer prices for non-durable consumer goods dropped by 2.3%. Capital goods prices fell 0.5%, while prices for durable consumer goods rose by 0.5%.

Colin Ellis, European economist at Daiwa Capital Markets Europe sees producer price inflation picking up in the months ahead and probably turn positive during the first quarter of 2010. Since energy prices have driven much of the volatility in headline inflation over the past two years and indeed the coming months, the economist do not expect the headline inflation rate to offer a good guide to underlying pricing developments.

On a monthly basis, total producer prices grew at a slower pace of 0.1% in December compared to the 0.2% rise in November. In the EU27, producer prices were flat on a monthly basis in December, but fell 1.7% year-on-year.

Among member states for which data were available, Latvia, Malta and Lithuania recorded the largest decreases, while Greece, Romania and the U.K. showed the highest increases. Producer prices decreased 5.1% in the euro area in 2009 and fell 4.3% in the EU27.

(Market News Provided by RTTNews)