Eurozone producer price inflation eased to the lowest level in more than two years in May, as inflationary pressures continue to recede amid sluggish economic performance, the latest data from the Eurostat showed Tuesday.
The subdued inflation figures have fueled hopes for an interest rate cut by the European Central Bank in the upcoming meeting on Thursday.
The producer price inflation in the domestic market eased to 2.3 percent in May from 2.6 percent in April. This is the weakest rate since March 2010.
Economists had forecast inflation to fall to 2.5 percent. The price index for total industry, excluding construction and energy, rose 1.1 percent annually.
The benign May Eurozone producer price data reinforce belief that the ECB has ample scope to take interest rates lower to try and give at least a limited boost to the struggling Eurozone economy, IHS Global Insight Chief European Economist Howard Archer said.
The ECB is widely expected to cut benchmark interest rate by a quarter point to a record low 0.75 percent this week to alleviate the impacts of the protracted debt crisis on the real economy.
On a monthly basis, the producer price index fell 0.5 percent, following a 0.1 percent gain in the preceding month. Excluding construction and energy, the PPI was flat.
Archer said weakened manufacturing activity is diluting companies' pricing power while the sharp retreat in oil prices from their March highs has eased the squeeze on manufacturers' margins, giving them increased scope to price competitively to try to generate business.
A flash estimate released by Eurostat showed last week that Eurozone annual inflation remained unchanged at 2.4 percent in June. In its latest monthly bulletin, the ECB said that inflation rates are set to stay above 2 percent for the remainder of 2012.
That said, the central bank policymakers have been repeatedly stating that there is no threat of inflation in euro area.
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