BRUSSELS (Reuters) - Euro zone factory prices fell slightly more than expected in February as the cost of energy dropped again, reinforcing the case for an ECB interest rate cut as early as this week to fend off the threat of deflation.
Prices at factory gates in the 18 countries using the euro slid 0.2 percent from January, the European Union’s statistics office Eurostat said on Wednesday, as Brent crude weighed on the inflation outlook.
Economists in a Reuters poll forecast a 0.1 percent fall.
The International Monetary Fund says the European Central Bank has room to cut interest rates to help the euro zone, which is recovering from its longest-ever recession and faces weak demand across many sectors of the economy.
Euro zone consumer price inflation hit its lowest level since November 2009 in March, Eurostat said on Monday.
Inflation has now been in the ECB’s “danger zone” of below 1 percent for six consecutive months, and the flash reading increases the chances the ECB will cut rates when its Governing Council meets on Thursday. Speculation has also grown that it may employ other easing measures such as a negative deposit rate or even U.S.-style bond-buying.
Still the euro zone is far from the deflation that Japan suffered from the early 1990s, when falling prices weakened demand, leading to wage cuts and even lower prices.
Falling energy prices are a factor for the euro zone, and Brent crude dropped to its lowest level in almost five months on Tuesday as China’s economy cools and Europe enjoyed a mild winter. Geopolitical tensions between Russia and the West over Ukraine have had less impact on oil supplies than natural gas.
Within Eurostat’s index, energy prices for factories in the euro zone fell 0.5 percent in February from January and were down 4.4 percent on a year-on-year basis.
For further details of Eurostat data click on: here
Reporting by Robin Emmott; editing by Robert-Jan Bartunek