Euro factories see first price fall since 2010

DRIVEN by declining energy prices, deflation has returned to Eurozone producers for the first time in three years, according to EU statistics released yesterday.

The producer price index (PPI), which measures the change in costs for businesses, fell sharply between March and April, by 0.6 per cent.

This left overall prices contracting by 0.2 per cent on average. A small increase of only 0.3 per cent had been expected. Though a small rise was seen in March, the rise was revised down to 0.6 per cent.

Prices for producers began declining in early 2009 as the financial crisis damaged European economies, but had been in growth for three years prior to the announcement.

Intermediate goods in the euro area fell by 0.2 per cent, and non-durable consumer goods dropped by 0.1 per cent.

The deflationary effect was largely caused by energy prices cutting costs for factories, which shot down by 1.6 per cent. Without the effect of the sharp fall in the cost of fuel for producers, the index would have seen a small rise.

Variations between countries in the euro were particularly stark in April: while prices for producers in Estonia have risen 11.3 per cent in the past year, the equivalent figure for Greece fell by 2.4 per cent, highlighting large structural differences between even the peripheral countries using the euro. Most states hovered narrowly above or below the prices recorded in March’s PPI reading..

The Organisation for Economic Co-operation and Development (OECD) also noted a slowing in price growth in the world’s advanced economies since 2012.

Prices for consumers grew by only 1.3 per cent across the group, the lowest rise recorded in a twelve month period since October 2009.

As with the European situation, the OECD noted world energy prices declining considerably, and driving inflation down around the world. Annual inflation fell in every major economy in April.

The Eurozone remains in recession, with GDP contracting for the past six consecutive quarters. Most analysts also predict that the currency union will progress into another quarter of negative growth when preliminary data is announced in August.