Eurozone Producer Price Inflation At 11-Month Low On Easing Energy Costs

Eurozone producer price inflation eased for the third consecutive month in November, but remained high, as energy prices rose at a slower rate, offering some relief to the European Central Bank that is likely to continue raising interest rates in the first quarter.

Producer prices registered an annual increase of 27.1 percent after a revised 30.5 percent rise in October, data from the statistical office Eurostat showed Thursday.

That was slightly slower than economists’ forecast of 27.5 percent.

Consumer price data released this week from some main euro area countries revealed slowing inflationary pressures due to lower energy prices and in some cases, the support measures by governments to reduce the cost burden on households and businesses.

The consumer price inflation slowed sharply in Germany, France and Spain. Yet, the rate of inflation in several countries, including these three, remain uncomfortably high, well above the ECB’s 2 percent target.

Core price growth is also at high levels, thus the latest easing in headline inflation can offer only a temporary relief to the ECB that slowed the pace of interest rate hikes in December from 75 basis points to 50 basis points.

Despite the recent easing in inflation indicators that suggest a peak, inflationary pressures are expected to remain high through out this year.

Results of a quarterly survey conducted by the ifo Institute and the Swiss Economic Policy Institute, released on Thursday, showed that global inflation expectations may have reached a peak, but higher interest rates are still expected.

Economists widely expect the ECB to raise interest rates at least twice this year, by 50 basis points each, mostly in the first quarter. Policymakers are set to receive a clearer picture of the Eurozone economic outlook in March, when the latest set of ECB staff macroeconomic projections is due.

Overall factory gate prices remained elevated, Eurostat data showed, but the latest rate of inflation was the lowest since December last year, when prices had risen 26.4 percent.  

Excluding energy, producer price inflation dropped to 13.1 percent from 14.0 percent in October.

The annual producer price inflation was still driven by the 55.7 percent surge in energy prices. That said, the pace was much slower than the 64.9 percent jump a month ago.

Prices of intermediate goods grew 15.3 percent and that of capital goods rose at a stable pace of 7.6 percent. Durable consumer goods and non-durable consumer goods prices increased 9.4 percent and 16.0 percent, respectively.

On a monthly basis, producer prices decreased for the second straight month in November, falling 0.9 percent due to the 2.2 percent drop in energy prices. That was in line with expectations after a 3.0 percent decline in October.

Producer prices in the EU27 increased 27.4 percent from last year, following October’s 31.1 percent surge. Month-on-month, producer prices slid 0.9 percent, slower than the 2.6 percent fall in October.

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