By Simone Meier Feb. 2 (Bloomberg) -- European producer prices dropped on an annual basis for a 12th month in December, the longest stretch of declines in a decade, after the economic slump prompted companies to cut costs and eliminate jobs. Factory-gate prices in the euro region fell 2.9 percent from a year earlier after a 4.4 percent drop in November, the European Union’s statistics office in Luxembourg said today. Producer prices decreased in every month of 2009, the longest slide since a 14-month stretch in 1998-1999. Economists projected a December decline of 3 percent, the median of 13 forecasts in a Bloomberg News survey showed. European manufacturers may struggle to raise prices as increasing unemployment curbs consumer demand and companies continue to reduce costs. The European Central Bank projects prices will remain “subdued.” Royal Dutch Shell Plc Chief Executive Officer Peter Voser said last week that it’s “extremely important” that companies start to invest again. “Conditions remain challenging for euro-region manufacturers,” said Howard Archer, chief European economist at IHS Global Insight in London. “It appears that they’re having to price attractively to win business.” BP Plc, the region’s biggest oil company, today posted fourth-quarter earnings that missed analysts’ estimates and predicted the recovery from last year’s recession will be “slow and gradual.” BP shares fell as much as 4.8 percent. Energy Prices Energy prices at the producer level decreased 5.6 percent in December from a year earlier, today’s report showed. Core producer prices, which exclude energy and construction, dropped 2.3 percent in December from the year-earlier month. “Consumption-driven demand is not coming back” for crude oil because of a still-sluggish global recovery, Shell’s Voser said last week. “I’m rather more pessimistic for the first half of the year than I am maybe for the whole year or the second half,” Voser said in an interview on Jan. 29. Shell, based in the Dutch city of The Hague, will report earnings in two days. Producer prices of intermediate goods such as machinery parts and steel declined 3.4 percent in the year, while equipment and other capital goods showed a 0.5 percent drop, according to today’s report. From the prior month, overall producer prices rose 0.1 percent in December. The ECB expects consumer-price inflation in the euro region to average about 1.3 percent this year and around 1.4 percent in 2011. The Frankfurt-based central bank aims to keep annual gains in consumer prices just below 2 percent. European inflation accelerated to 1 percent in January, the fastest pace in almost a year. More Competitive While the euro’s 2.7 percent drop against the dollar over the past month is making exports more competitive, it’s also increasing the cost for imports including energy. The euro was little changed against the dollar after the producer-price data, trading at $1.3938 at 10:03 a.m. in London, up 0.1 percent. “The economy took a really steep fall. It’s been stabilizing,” ECB council member Axel Weber said on Jan. 27. “I’m not worried” about the inflation outlook. “I think rates are appropriate at this point,” he said. The ECB on Feb. 5 will probably keep borrowing costs at a record low of 1 percent to bolster the recovery, according to all 55 economists in a Bloomberg survey. The central bank will announce its decision at 1:45 p.m. in Frankfurt followed by a press conference with President Jean-Claude Trichet 45 minutes later. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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