Euro zone producer prices rose less than expected in June, with subdued consumer goods prices softening a rise in energy costs and leaving overall price pressures muted, figures showed.
European Union statistics office Eurostat said prices at factory gates in the 16 countries using the euro rose 0.3 per cent month-on-month for a 3.0 per cent year-on-year increase.
"Generally speaking it remains a fairly moderate inflation picture on average," said Giada Giani, analyst at Citigroup.
The figures were boosted by energy prices, which were at low levels a year ago, creating a base effect. They increased 0.6 per cent on the month for an annual gain of 6.0 per cent.
But modest monthly increases of durable and non-durable consumer goods, 0.2 per cent each, suggested no inflationary pressure. Excluding energy and construction, producer prices were up 0.1 per cent month-on-month and 1.9 per cent annually.
"Furthermore, still muted consumer spending across the euro zone suggests that the rise in producer prices will be largely absorbed by retailers," said Howard Archer, chief Europe analyst to Global Insight.
This, coupled with the uncertain growth outlook, should encourage the European Central Bank to keep its main interest rate at a record low of 1.0 percent well into the next year.
Producer prices play an important role for rate-setters as a precursor to consumer price developments. The European Central Bank wants to keep consumer inflation below but still close to 2 per cent over the medium term.
Euro zone consumer inflation edged up to 1.7 per cent year-on-year in July from 1.4 in the previous month, Eurostat estimated this week, but analysts say core inflation is subdued.
"Therefore the ECB is likely to remain rather sanguine regarding inflation risk. We don't expect the bank to alter its monetary policy this year," said Peter Vanden Houte, economist at ING.
Reuters