Cheaper energy pushed down eurozone producer prices in December from the previous month, data showed on Thursday, in a sign inflationary pressures early in the pipeline are easing and potentially leaving room for more ECB interest rate cuts. The European Union's statistics office said prices at factory gates in the 17 countries using the euro fell 0.2 percent month-on-month for a 4.3 percent year-on-year rise - in line with the consensus forecasts in a Reuters poll.
Producer prices show price pressures early in the pipeline, because their rises tend to translate into price increases for consumers, unless intermediaries or retailers absorb the change at their own cost. The European Central Bank wants to keep consumer price growth at below, but close to 2 percent over the medium term. The bank cut borrowing costs to a record low 1.0 percent last year to help the economy and markets are betting it could cut rates again soon given signs the eurozone is on the brink of recession.
Consumer prices rose 2.7 percent in January, the same rate of growth as in December and economists expect they will slow in the coming months along with the economy. "Retreating inflation over the coming months should give the ECB ample scope to cut interest rates again should euro zone economic activity continue to struggle - which we suspect it will," said Howard Archer, economist at IHS Global Insight.
"We suspect further euro zone GDP contraction in the first quarter of 2012 at least following probable contraction around 0.4 percent quarter-on-quarter in the fourth quarter of 2011," he said. The ECB meets on rates on February 9. Energy prices fell 0.4 percent on the month but were 9.5 percent higher than a year earlier, although slowing from a 12.4 percent year-on-year increase in November. Prices of intermediate goods also fell month-on-month and capital goods, consumer durables and non-durables were all unchanged from November.
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