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Euro-Area Producer Prices Unexpectedly Drop From Year Ago

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June 4 (Bloomberg) -- Euro-area producer prices unexpectedly declined from a year earlier in April for the first time since 2010, indicating inflation will slow more and adding to arguments for further action by the European Central Bank.

Factory-gate prices in the 17-nation economy fell 0.2 percent after a 0.6 percent annual increase in March, the European Union’s statistics office in Luxembourg said today. That’s the first annual decline since February 2010, when prices fell 0.6 percent. Economists had projected a 0.2 percent gain in April, according to the median of 16 estimates, in a Bloomberg News survey.

Euro-area annual consumer-price growth has been below the ECB’s 2 percent ceiling since February, though the rate accelerated to 1.4 percent in May. The ECB will keep its benchmark rate at a record low of 0.5 percent when it meets on June 6, according to the median of 59 economists in a separate Bloomberg survey.

“Manufacturing activity across the euro zone is clearly still limited and this is maintaining serious pressure on companies to price competitively,” said Howard Archer, an economist at IHS Global Insight in London. “We expect the ECB to take interest rates down from 0.5 percent to 0.25 percent during the third quarter.”

‘Gradual Recovery’

ECB President Mario Draghi said yesterday that while the economic outlook is “challenging” he still anticipates a pick up in growth this year. “Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year,” Draghi said in the text of a speech in Shanghai.

The euro was little changed against the U.S. dollar after the producer-price data, trading at $1.3081 at 11:41 a.m. in Brussels, up less than 0.1 percent on the day.

Energy costs at the producer level fell an annual 2 percent in April after a 0.3 percent decline in the prior month, today’s report showed. Prices of intermediate capital goods decreased 0.3 percent in April, while durable goods showed a 0.7 percent gain.

In Germany, Europe’s largest economy, producer-price inflation slowed to 0.1 percent in April from 0.4 percent, according to the report. French factory prices rose 0.6 percent, while those in Spain declined 0.5 percent.

From a the prior month, April producer prices declined 0.6 percent. The March year-on-year increase was previously estimated at 0.7 percent.

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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