Prices at euro zone factory gates logged their biggest annual fall on record in June, data showed today, increasing the risk of deflation.
Producer prices in the 16-country euro currency area increased 0.3 per cent month-on-month, but fell 6.6 per cent annually, the biggest drop since EU measurements started in 1996, the European Union statistics office Eurostat said.
Producer prices show inflationary pressures early in the pipeline as their moves are usually reflected later in consumer prices, which the European Central Bank (ECB) wants to grow by just under 2 per cent year-on-year.
Falling prices are a response to a large drop in energy costs since a year ago and to flagging demand as the euro zone economy experiences its worst recession since World War Two on the back of the global financial crisis.
According to first estimates, euro zone consumer prices fell for the second month running in July, by a record of 0.6 per cent year-on-year.
Analysts expect the ECB to hold its main interest rate at a record low of 1 per cent for a long time and keep unconventional monetary measures in place.
Some analysts point to a danger of deflation in the euro zone, or a prolonged and widespread decline in prices coupled with consumers' expectations of further falls which normally hits economic output.
But the ECB, the European Commission and International Monetary Fund have said prices should start increasing after few months of declines.
Eurostat said the main driver behind the annual fall in producer prices was a 15 percent annual drop in energy costs, thanks to cheaper oil and gas.
Intermediate, or semi-finished, goods prices were 6.4 per cent percent lower than a year before and those of non-durable consumer goods fell 2.9 per cent.
But prices of durable consumer goods increased 1.5 per cent year-on-year and capital goods, or some commodities and raw materials, rose by 0.3 per cent.
Eurostat revised its May producer price data to 0.0 per cent month-on-month and 5.9 per cent yearly from previous readings of -0.2 per cent and -5.8 per cent respectively.
Reuters