Eurozone Factory-Gate Prices Stall for Sixth Month, Posing Quandary for ECB

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.

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.

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.
Source: Dow Jones

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