Euro zone factory prices slump to nearly 4-yr low in October

Tuesday, 3 Dec 2013 | 7:40 AM ET
Philippe Huguen | AFP/Getty Images

Euro zone producer prices fell more than expected in October, data showed on Tuesday, with the annual inflation rate at a nearly 4-year low in a fresh sign of a sharp fall in inflationary pressures.

Prices at factory gates in the 17 countries using the euro declined 0.5 percent in October against September, the EU's statistics office said on Monday, the first monthly decline in five months.

(Read more:As youwere? Europe deflation fears despite upbeat data)

Economists polled by Reuters had forecast a decrease of 0.2 percent.

Changes in producer prices, unless absorbed by retailers, eventually translate into changes in the consumer price index, which the European Central Bank wants to keep below, but close to 2 percent. Consumer inflation was 0.9 percent year-on-year in November.

Is deflation good for the euro zone?
Michael Heise, chief economist at Allianz, says deflation could be good for southern Europe's competitiveness.

The year-on-year figure for producer prices showed a 1.4 percent drop in October, its lowest since December 2009, after a 0.9 percent fall in September.

The monthly drop was strongly driven by a 1.4 percent fall in costs or energy, followed by a 0.2 percent decrease in prices of non-durable consumer goods.

(Read More: Inflation will pick up but risks remain: ECB official)

Prices in only three countries of the bloc - Estonia, Cyprus and Malta - were flat or rising on the month in October and the annual reading was in the positive territory only in Estonia, Ireland, Malta and Finland.

France, the euro zone's second largest economy saw a 0.3 percent drop on the month, putting the annual rate at -1.4 percent, its lowest since December 2009, according to the Eurostat data.

(Read more: Why euro zone slowdown should worry the world)

Inflation in the 9.5 trillion euro economy remains well below the European Central Bank's official target of close but below 2 percent despite a pick-up in consumer prices in November.

Economists polled by Reuters expected the ECB to stay put on rates on Thursday after a surprise cut its main refinancing rate to a record low of 0.25 percent at it November meeting, with the market expecting new growth and inflation forecasts.

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