Eurozone factory prices drop ahead of rate-setter meeting

City A.M. Reporter
EUROZONE factory prices fell for the first time in five months in November, pulled down by a slide in the cost of energy and giving the European Central Bank ample room to consider another interest rate cut.

Prices at factory gates in the 17 countries using the euro fell 0.2 per cent in November from October, the EU’s statistics office Eurostat said yesterday. Economists polled by Reuters had expected no month-on-month change in industrial producer prices.

Compared to the same month a year ago, the producer price index was up 2.1 per cent in November, echoing consumer inflation that was steady at 2.2 per cent in December and just above the ECB’s target of close to, but not above, two per cent.

Lower world oil prices have also helped cut the cost of energy for Eurozone industry and households.

Investors and economists are looking to the ECB’s monthly meeting on Thursday to see if the central bank hints at an interest rate cut early this year to reduce the cost of borrowing and help the Eurozone economy out of recession.

Inflation was stubbornly high for much of 2012 and complicated the ECB’s monetary policy task, but is now more benign and most economists expect the governing council to cut its main interest rate by a quarter point to 0.5 per cent, a new record low. That may not come this week, however.

“We expect this week’s meeting to be relatively uneventful,” UniCredit said in a note to clients.