European Producer Prices Fall More Than Expected on Cheaper Oil

European producer prices declined more than economists expected in December on lower oil prices, adding to arguments that the region’s central bank should reduce interest rates more to combat the deepening recession.

Factory-gate prices in the euro region fell 1.3 percent from the previous month after a record 2 percent decline in November, the European Union’s statistics office in Luxembourg said today.
The December drop was sharper than the 1.2 percent fall forecast by economists, according to the median of 22 estimates in a Bloomberg News survey. Annual producer-price inflation eased to 1.8 percent, the slowest in 16 months.

Oil prices have fallen by more than two-thirds since a July peak and consumer-price inflation is at a 10-year low, prompting global deflation concerns and putting pressure on the European Central Bank to cut rates further to spur lending and boost the region’s contracting economy. The ECB, which has more than halved its key rate since early October to match a record-low 2 percent, last month signaled another reduction is likely in March.

“The pace of deceleration in inflation is striking,” Audrey Childe-Freeman, an analyst with Brown Brothers Harriman & Co. in London, said in an e-mailed note. “Some may be tempted to conclude that deflation is in the air and today’s report may reinforce this perception.”

Bloomberg