October preliminary: +0.1% m/m, +5.5% y/y

MNI survey median: +0.2% m/m, +5.6% y/y
MNI survey range: -0.1% to +0.3% m/m

September: +0.3% m/m, +5.8% y/y
August: -0.2% m/m, +5.8% y/y
July: +0.4% m/m, +6.1% y/y
June: flat m/m, +5.9% y/y
May: -0.2% m/m, +6.2% y/y

PARIS (MNI) – Eurozone industry producer prices rose less than
generally expected in October, as cheaper intermediate goods offset much
of the boost from energy, Eurostat said Friday.

Producer prices rose 0.1% on the month, narrowing the annual
increase to 5.5% from 5.8% in September.

Recent monthly fluctuations in the PPI have been driven mainly by
swings in energy costs, as price trends in other categories have been
fairly steady at low levels. Now the downturn at the start of the
production chain is playing a dampening role as well.

After a 1.0% rebound in September, energy costs rose another 0.8%
on the month, despite the modest easing of the Brent crude price in
October. Crude prices recovered in November to surpass September’s
average.

Excluding energy, the PPI slipped 0.1% on the month after
stabilizing in September and was only 3.2% higher on the year.

In other sectors, prices remained tame. Intermediate goods prices
fell 0.4% on the month after a 0.1% downturn in September, reflecting
recent trends in commodity prices. Capital goods and consumer durables
both edged up 0.1%, while non-durables were up 0.2%.

Annual changes also confirm that pipeline price pressures are
diminishing, apart from energy, which was 12.4% higher on the year after
+12.2% in September. The annual gain for intermediate goods declined to
4.2% from 6.6% five months earlier. The annual rise for other sectors
was 3.5% or less.

Producer prices have slowed markedly since last spring, posting a
cumulative increase of only 0.5% since April. And the trend is likely to
continue.

According to the manufacturing PMI polls, input prices declined
slightly again in most Eurozone countries in November (48.9), reflecting
weaker demand and the unwinding of the commodity price spiral.
Factory-gate prices rose marginally (50.6) after stabilizing in October.

Oil market fundamentals should favor elevated prices in the near
term, the International Energy Agency argued last month, citing
declining stocks and projected average demand growth of 1.3 million
barrels per day next year.

By contrast, prices for most base metals, grains and other food
products have stabilized or softened in recent months. In its Economic
Outlook, released last month, OECD assumes that commodity prices will be
stable in the coming two years, with Brent hovering around $110 per
barrel.

As existing pipeline pressures work through the production chain
and energy base effects unwind next spring, annual PPI rates should fall
below current core rates. Producers may well have to squeeze profit
margins further if demand remains anemic.

Labor costs should also remain subdued as the economy heads into
recession and rising unemployment undermines unions’ bargaining power.
In October, most professional forecasters expected Eurozone inflation to
slow to less than 2% next year and more recent projections should be
even lower.

Slowing inflation will give the ECB further leeway to cut interest
rates.

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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