Nov. 4 (Bloomberg) -- European producer prices declined on an annual basis for a ninth month in September as energy costs plunged more than 17 percent even as the global economy showed signs of recovery from the recession.

Factory-gate prices in the 16-nation euro region dropped 7.7 percent from a year earlier after falling 7.5 percent in August, the European Union’s statistics office in Luxembourg said today. The September drop matched the median estimate of 19 economists in a Bloomberg survey. From the previous month, September producer prices declined 0.4 percent.

Companies across Europe continue to eliminate jobs and lower prices to deal with falling demand as the region starts to emerge from the worst recession in more than six decades. European Central Bank Governing Council member Guy Quaden said on Oct. 29 that probably “inflation will remain very weak and the economic recovery fragile” in the euro region.

“There is still downward pressure on prices because firms are in a very competitive environment,” said Luigi Speranza, an economist at BNP Paribas in London. “I don’t think an interest- rate hike is on the cards any time soon because on balance risks to inflation are on the downside rather than the upside.”

Energy prices decreased 17.6 percent in September from a year earlier and fell 1.9 percent from the prior month, today’s report showed. Crude oil, which reached a record near $150 a barrel in July 2008, traded around $80 a barrel today.

Household Spending

European consumer prices fell for a fifth month in October after unemployment increased to the highest in more than a decade, curbing household spending and prompting retailers to offer discounts. Metro AG, Germany’s largest retailer, said yesterday that quarterly profit plunged 61 percent as rising joblessness eroded consumer spending across Europe. The company forecast no improvement for the rest of the year.

Nokia Siemens Networks, the world’s second-biggest telecommunications-equipment supplier, said yesterday that it plans to eliminate as many as 5,760 jobs in the second round of cuts since the joint venture between Nokia Oyj and Siemens AG was created. Espoo, Finland-based Nokia Siemens is trying to pare expenses by 500 million euros ($737 million) in the next two years in the face of increased price competition.

Helsinki-based UPM-Kymmene Oyj, Europe’s second-largest papermaker, said yesterday that it plans to close three plywood and timber mills to reduce production as demand falls. C&C Group Plc, the Irish maker of Magners cider, is lowering prices as part of a bid to revive revenue. Dublin-based C&C on Oct. 8 posted a 9.9 percent drop in first-half profit and said trading conditions were “more challenging” in August and September.

Inflation Expectations

Evidence is mounting that the economy is pulling out of the slump. Europe’s services and manufacturing industries expanded for a third month in October, a composite index published by London-based Markit Economics showed today. Data last week showed that the U.S. economy, the world’s biggest, emerged from the recession in the third quarter.

Euro-area consumer-price inflation next year will remain below the ECB’s 2 percent ceiling, the European Commission said yesterday in its semi-annual economic forecasts. The euro-area inflation rate will be 0.3 percent this year, rising to 1.1 percent next year and 1.5 percent in 2011, according to the commission’s projections.

ECB President Jean-Claude Trichet said on Oct. 8 that inflation would turn positive again “in the coming months” and inflation expectations are “anchored.” The Frankfurt-based central bank probably will keep its key interest rate at 1 percent at its meeting tomorrow, according to the median estimate in a Bloomberg survey of economists.

Core producer prices, which exclude energy and construction, dropped 4.3 percent in September from the year- earlier month, today’s report showed. Prices of intermediate goods fell 7.3 percent, while those for durable consumer goods rose 0.7 percent.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net

Last Updated: November 4, 2009 05:00 EST