Eurozone producer prices in March recorded the biggest annual fall in 22 years, adding more pressure on the central bank to cut its key rate this week.

According to a report released by European Union statistics agency Eurostat on Tuesday, industrial producer prices slipped 3.1% annually in March, larger than the revised 1.7% decrease in the prior month. The annual decline in March was larger than the expected 2.9% decrease and the biggest since February 1987.

Month-on-month, producer prices declined 0.7% in March compared with a 0.4% drop in February. Economists were expecting a monthly 0.6% fall.

Compared with March 2008, prices in total industry excluding the energy sector fell 1.7%, while prices in the energy sector decreased 7.3%. Intermediate goods prices and non-durable consumer goods prices were down 4.1% and 1.6%, respectively. These declines were partly offset by a 1.5% rise in capital goods and 1.8% in durable consumer goods.

In the EU27, industrial producer prices dropped 2.3% in March from the previous year versus a 0.7% decrease in February.

Greece and the Netherlands experienced the largest annual falls of 6.8% and 6.7% among the member states. At the same time, Malta reported the highest increase of 38.5%, which was followed by Hungary and Romania with 4.6% and 3.8% rises, respectively.

Yesterday, the European Commission sharply lowered the GDP outlook for the euro area in its Spring Forecast. The 16-nation euro area is now expected to contract 4% in 2009 and 0.1% next year. The Brussels-based commission also projected the euro area unemployment rate to rise to 11.5% from 9.9% this year.

In April, the European Central Bank had lowered its key interest rate to a fresh low of 1.25%. Given the current inflation and recession, economists now expect the central bank to cut the main refinancing rate to 1% on May 7.

In an interview to business daily Nikkei on April 20, ECB President Jean-Claude Trichet had said central bank was considering additional monetary easing measures to support the economy and Europe will see a gradual recovery in 2010 after experiencing exceptionally challenging situations in the current year.

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