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Euro zone August factory prices flat, inflation pressures ebbing

BRUSSELS (Reuters) - Euro zone producer prices defied expectations of a small rise and were flat in August against July, underlining the absence of inflationary pressures and signaling the European Central Bank can keep its loose monetary policy to help the recovery.

The EU's statistics office said on Friday that factory prices in the 17 countries sharing the euro were flat on the month following a downwardly revised 0.2 percent rise in July. Economists polled by Reuters had expected a 0.1 percent rise.

Producer prices fell 0.8 percent compared with the same period last year, after being flat in July rising 0.2 percent in June.

Producer price increases, unless absorbed by intermediaries or retailers, are usually passed on to consumers, making the indicator a good gauge of inflationary pressures early in the pipeline.

The European Central Bank want to keep consumer inflation below, but close to 2 percent. The bank expects inflation for all of 2013 to be between 1.4 percent and 1.6 percent.

Consumer inflation was 1.1 percent year-on-year in September and analysts expect it ease further in the coming months.

Price pressures fell to their lowest in almost four years even though the 9.5 trillion euro economy emerged from its longest recession in the second quarter.

The ECB left its key interest rate at a record low of 0.5 percent on Wednesday and economists expect it will stay unchanged for an extended period of time, although the bank has signaled it was ready for a further loosening if the nascent recovery would require such a move.

Energy price increases, often the key driver of the overall index, slowed to 0.2 percent in August following a 0.6 percent increase in July. Prices of capital and durable consumer goods, such as cars and electronics, were flat in August from July.

Prices at factory gates in Germany, Spain and Portugal fell by 0.1 percent on the month in August.

France, the bloc's second largest economy, saw a 0.3 percent rise and Italy, the third biggest, reported a 0.2 percent increase.

(Reporting by Martin Santa)

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