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Euro Zone Factory Prices Fall, Mirror Inflation

The European Central Bank headquarters in Brussels.
Hannelore Foerster | Bloomberg | Getty Images
The European Central Bank headquarters in Brussels.

Euro zone factory prices fell for the second month in a row in December, mirroring the trend in consumer inflation and leaving room for a possible European Central Bank interest rate cut to revive the weak economy.

Prices at factory gates in the 17 countries using the euro fell 0.2 percent in December from November, the EU's statistics office Eurostat said on Monday, as expected by economists polled by Reuters.

Prices fell by the same margin in November. Compared to the same month a year ago, the producer price index was up 2.1 percent in December, almost the same as annual consumer inflation that was 2.0 percent in January and neared the ECB's target of close to, but below, 2 percent.

The ECB's governing council kept rates at 0.75 percent at its January meeting and will discuss rate policy again on Thursday. The decision to keep policy on hold was unanimous last month, but economists are divided over the ECB's future moves.

Thirty-eight out of 73 analysts polled in January by Reuters said the ECB will remain on hold in the first quarter. None expected a rate cut this week.

"The ECB is unlikely to change policy stance at the February Governing Council meeting," Citigroup said in a note. "But we expect the tone of the press statement to turn more cautious on the economic outlook and more relaxed on the outlook for inflation," the bank said, referring to the ECB's explanation for its decision on rates delivered to the media.

Both consumer and factory inflation were driven up last year, despite the euro zone's recession, by high world oil prices and tensions between Iran and the West over Tehran's nuclear ambitions pushed up the cost of energy.

Lower world oil prices have since helped cut the cost of energy for industry and households in the euro zone, since Brent crude came down from $120 a barrel in August to trade around $110 a barrel towards the end of 2012.

Brent crude was around $116 a barrel on Monday, on signs of improving economic growth in the United States and China.

Last year's cooler prices were reflected in the euro zone's producer prices in December, and energy dropped 0.8 percent, the third straight month of falls, and by the same margin as in November.

Contact Europe: Economy

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