Producer prices in the euro area showed the biggest annual decline in 10 years, signaling risk of deflation in the economy. At the same time, retail sales registered a record fall in February as rising unemployment impaired consumer spending.

Producer prices showed an annual 1.8% decrease in February versus January's 0.7% drop. This was the largest fall since April 1999. For the annual variation, economists were looking for a 1.5% fall. Industrial producer prices slid 0.5% month-on-month in February, following a 1.1% decline in January. Monthly number matched economists' expectations.

Producer prices in total industry excluding the energy sector slid 1% annually, while prices in the energy sector fell 4.5%. Non-durable consumer good prices were down 0.9% and intermediate goods cost decreased 3.1%. By contrast, capital goods prices and durable consumer goods prices grew 1.8% and 2%, respectively.

The producer price index for the EU27 dropped 0.3% in February from the previous month, taking the annual fall to 0.8%.

Among Member States for which data are available, the highest annual increases in the total index were observed in Malta, Hungary and Romania, while the largest falls in Greece, France and the Netherlands.

In a separate communiqué, the Eurostat said retail sales in 16-nation bloc slipped by a record 4% in February on a yearly basis. Retail sales decreased by a revised 1.7% in January and consensus forecast was for a 2.5% decline in February. While, retail sales of food, drinks and tobacco slid 3.7% in the Euro area, non food sales dropped 3.7%.

Retail sales volume fell 0.6% in February from the previous month. Economists were expecting retail sales to drop just 0.4% in February after rising 0.1% in January.

In the EU27, the volume of retail trade was down 1.2% from the previous month, reversing a 0.7% rise in January. On a yearly basis, sales declined 3.4%.

European Union's statistics office found that total retail trade fell in fifteen member states and rose only in Poland and Belgium. At the same time, Latvia, Estonia and Lithuania reported largest annual decreases in February.

Last week, the European Central Bank had reduced the key interest rate by a quarter percentage point. The reduction took the benchmark rate to an all-time low of 1.25%. The ECB has lowered a total of three full percentage points since early October 2008 to support economy that is falling into deep recession.

Elsewhere, the European Central Bank Governing Council member Lorenzo Bini Smaghi said the euro area should speak with one voice on exchange rate issues in all international institutions.

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