Eurozone factory prices cool

Eurozone factory prices unexpectedly held steady in April, marking the fourth straight month of weakening inflation pressures and giving the European Central Bank some space to cut interest rates as the continent's economy slumps. Prices at factory gates in the 17 countries using the euro were unchanged from the previous month, the European Union's statistics office Eurostat said on Monday, as falling oil prices and the cooling world economy shift the inflation outlook.
Economists in a Reuters poll had forecast a 0.2 percent rise, while producer price inflation on an annual basis was also lower than expected at 2.6 percent in April. That compared to a 2.7 percent estimate seen by economists. Months of stubborn inflation for households and factories alike appear to be giving way as the currency area's debt crisis saps the life out of even the bloc's strongest economies and ricochets into the world economy, knocking down oil prices.
That could change the stance for the ECB, whose ability to cut rates below its record 1 percent level has been severely limited by oil at $120 a barrel even as the stagnating European economy keeps wage rises in check. Still, investor concerns about euro zone leaders' handling of the crisis and disappointing job and economic growth in the United States, China and Brazil have brought crude to below $100 a barrel in recent days.
That could help quieten anxiety in Germany that inflation poses a danger to the euro zone's biggest economy. Some economists argue that record-low rates may be appropriate for Spain and Greece, which are struggling with recession and unemployment rates approaching 25 percent, but not for Berlin. While only 11 of 73 economists polled by Reuters expect a rate cut this Wednesday at the bank's monthly meeting in Frankfurt, investors will be listening carefully for any change in tone from Draghi and the ECB's governing council.
Crucially, energy price inflation at euro zone factories fell 0.1 percent in April, Eurostat said, having risen sharply in the first three months of the year. Consumer price inflation also fell more than expected in May, to 2.6 percent from 2.4 percent in April, after several sticky months where prices were kept high by the cost of energy in the euro zone. That was the lowest level since February 2011, but still above the ECB's medium-term target of close to, but below, 2 percent.