A DROP in the highly volatile energy prices depressed eurozone producer prices in July as expected, underlining disinflationary pressures in the single currency area ahead of the European Central Bank’s (ECB’s) monetary policy meeting today.

    Prices at factory gates in the 18 countries sharing the euro fell as anticipated by 0.1 percent in July against June and dropped 1.1 percent on the year, the EU’s statistics office Eurostat said Tuesday.

    The annual drop was the steepest since April’s 1.2 percent decline.

    Producer prices are an early indication of price trends. Unless their fluctuations are absorbed by retailers, they eventually translate into consumer inflation or deflation.

    Both the monthly and the annual declines were influenced by a 0.6 percent and 3.5 percent drop respectively in the costs of energy, data showed.

    Prices in all other sectors, such as durable and non-durable consumer goods, were flat in July when compared with June.

    The ECB meets today, facing a dilemma of how to respond to vanishing inflation in the 9.6-trillion-euro (US$12.5 trillion) economy whose recovery unexpectedly stalled in the second quarter, only two months after an interest rate cut in June.

    A majority of economists expect the ECB to stay on hold in September and wait for effects of its last rate cut to kick in, including targeted longer-term refinancing operations aimed to boost bank landing.

    (SD-Agencies)