Euro Zone Producer Prices Continue to Decline

Posted on Wednesday, November 4, 2009

Substitute United States for European Union and you'll get an idea of why the Fed will not be cutting rates this afternoon.

Forbes details:

Producer prices in the 16 countries using the euro fell 0.4 percent against August, leaving them 7.7 percent lower than a year earlier, European Union statistics agency Eurostat said.

Cheaper oil served as the main reason behind the monthly and annual declines as energy costs fell 1.9 percent against August and 17.6 percent compared with September 2008.

Producer prices are important to the European Central Bank because they show inflationary pressure, or the reverse, early in the pipeline. Economists say many companies cannot raise prices because of excess capacity and intense competition.

The ECB, which meets to decide on interest rates on Thursday, wants annual consumer price inflation to be just below 2 percent but it was at -0.1 percent in October, the fifth straight month of falling prices.