Eurozone Factory-Gate Prices Stall for Sixth Month -- Update

By Paul Hannon Features Dow Jones Newswires

The prices of goods leaving the eurozone's factory gates haven't risen since January, indicating continued weakness in inflationary pressures, despite a firming economic recovery.

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The European Union's statistics agency said Monday that producer prices were unchanged in July from June, and were up just 2% from July 2016.

Economists surveyed by The Wall Street Journal had expected to see a 0.1% rise on the month.

The period in which factory-gate prices have either stayed the same or fallen now stretches to six months, following a jump in January driven by higher energy costs.

That weakness has contributed to low rates of consumer-price inflation, which remains well below the European Central Bank's target of just under 2%, following a slight acceleration in August.

The ECB's economists will publish new forecasts Thursday. Some analysts expected them to lower their projections for inflation in 2017 and 2018 to reflect the euro's appreciation against other major currencies over recent months. As a currency grows stronger, the prices of imported goods and services falls.

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"We expect the ECB will have to revise down its inflation projections," said Luigi Speranza, an economist at BNP Paribas. "This poses a sizable dilemma for the ECB and certainly an additional communication challenge."

In June, the ECB's economists forecast the inflation rate would fall to 1.3% in 2018 from 1.5% in 2017. Any further cut would complicate policy makers' decision on the future of a bond-buying program that is tentatively scheduled to end in December.

The pickup in economic growth over recent quarters, together with a steady decline in unemployment and a surge in confidence, suggests the economy no longer needs as much stimulus as it did when the program was started in 2015. But the ECB's target is inflation, not growth, and it is far from certain it will meet its goal over coming years.

There are some signs that rising factory output is pushing up business costs in the eurozone and in turn pressuring firms to raise their prices.

An IHS Markit survey of 3,000 companies found prices of raw materials and other inputs rose in August at the fastest pace since May, while factory-gate prices rose more rapidly than in July. But those price rises remain modest and are constrained by the stronger euro on the raw materials side.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 04, 2017 06:20 ET (10:20 GMT)