Soaring energy ups euro zone March producer prices

BRUSSELS (Reuters) - Soaring energy costs fuelled a steep increase in euro zone producer prices in March as expected, data showed on Tuesday, in yet another sign of high inflation in the single currency area.

Prices at factory gates in the 15 countries using the euro rose 0.7 percent month-on-month, as expected by analysts, for a 5.7 percent annual gain, the European Union statistics office said.

Economists polled by Reuters had expected a 5.6 percent annual increase. Eurostat also revised up by 0.1 percentage point its February producer price growth data to 0.7 percent month-on-month and 5.4 percent year-on-year.

Core producer price inflation, a measure excluding the volatile energy and construction components, was 0.3 percent month-on-month and 3.7 percent annually -- against 0.5 percent and 3.6 percent, respectively, in February.

Energy prices rose 1.8 percent from February for an annual gain of 12.7 percent, Eurostat said, as U.S. crude oil futures hit a new record high above $120 a barrel on Tuesday.

Producer prices are an early indication of inflationary pressure because their increases, unless absorbed by retailers via lower profit margins, eventually translate into higher costs for consumers.

Euro zone inflation eased in April to 3.3 percent year-on-year from 3.6 percent in March, but remained well above the European Central Bank's target of just below 2 percent.

The ECB, which has long kept its main interest rate at 4.0 percent despite an economic slowdown in the euro zone, is worried that high food and energy prices will feed into the wider economy, especially amid demands for higher wages.

The Eurostat data showed producer prices for durable and non-durable consumer goods rose 2.5 percent and 5.0 percent year-on-year respectively in March.