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Cheaper energy pulls down eurozone factory prices in January

A steep fall in energy costs brought down eurozone producer prices faster than expected in January, data showed on Tuesday, underlining deflationary risks ahead of the European Central Bank's policy meeting on Thursday.

Prices at factory gates in the 18 countries sharing the single currency dropped 0.3 percent in January against December mainly because of a 1.4 percent fall in costs of energy, the EU's statistics office Eurostat said.

Analysts polled by Reuters expected prices to ease 0.1 percent on the month.

Compared with the same period of the last year, producer prices fell 1.4 percent against market expectations of a 1.3 percent drop, showing its biggest slump since December 2009 when prices fell 3.0 percent.

Producer prices are an indication of inflationary pressures early in the pipeline because unless absorbed by retailers, they eventually translate into consumer inflation, which the European Central Bank wants to keep below, but close to 2 percent.

The ECB is poised to take action on Thursday to ease lending conditions and drag consumer inflation out of a "danger zone" below 1 percent year-on-year, that threatens the bloc's fragile recovery.

Adjusted for energy, producer prices rose 0.1 on the month in January after being flat in December.

There were only five eurozone countries were prices at factory gates rose in January month-on-month, led by a 1.1 percent growth in Estonia and followed by the bloc's newest member Latvia showing a 1.0 percent increase.

In Europe's largest economy, Germany, producer prices fell 0.1 percent in January, after a 0.1 percent rise in the previous month.

In he bloc's southern periphery, which is slowly regaining competitiveness through years austerity policies, the picture was mixed: prices in Greece grew 0.3 percent month-on-month while Spain saw a 1.3 percent drop in January against December. [Reuters]

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