December 2, 2014 / 10:10 AM / in 3 years

Euro zone producer prices fall at sharpest rate in a year

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013.Kai Pfaffenbach

BRUSSELS (Reuters) - Euro zone factory prices fell at their sharpest monthly rate in a year in October as the cost of energy and non-durable goods such as food dropped sharply, putting pressure on the European Central Bank to do more to lift the bloc's depressed economy.

Prices at factory gates in the 18 countries sharing the single currency declined by 0.4 cent from September, the European Union's statistics office Eurostat said on Tuesday.

Economists polled by Reuters had forecast a 0.3 percent drop.

The figure was pulled down most by a 0.9 percent drop in energy costs and by a 0.6 percent decline of non-durable goods prices, depressed by the slide in oil and commodity prices.

October's fall in producer prices feeds into of the euro zone's wider problem with deflationary pressures. Factory prices have only risen in June and September this year.

On an annual basis, prices fell 1.3 percent in October, in line with market expectations and a slightly lower pace than the 1.4 percent slide seen in both August and September. Only prices of capital and durable consumer goods rose.

The steepest annual declines were seen in Slovakia, Estonia and the Netherlands.

The global financial crisis and the ensuing euro zone crisis have badly hurt banks' willingness to lend, damaged business confidence and left the region fighting record unemployment, which has sapped consumers ability to spend.

Now the near 10 trillion euro ($12.4 trillion) euro zone economy is facing the threat of deflation, which would make it even more difficult for the indebted bloc to pay off its debt.

Euro zone consumer inflation cooled to a five-year low in November, suggesting deflation remains a real threat for the ECB.

Nevertheless the ECB is not expected to announce more stimulus measures at this Thursday's monetary policy meeting, with more of a wait-and-see stance, according to euro money market traders polled by Reuters.

To bring inflation back to about 2 percent, ECB chief Mario Draghi wants to restore the ECB's balance sheet to its March 2012 level of around 3 trillion euros, compared with 2 trillion euros now, which should increase demand by flooding markets with cash and support lending to smaller firms that are the backbone of the economy.

Eleven of 15 traders said the ECB would be able to meet the 3 trillion-euro goal over the next 12 to 18 months.

Reporting By Philip Blenkinsop, editing by Robert-Jan Bartunek

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