BRUSSELS, May 5 (Reuters) - Prices at factory gates dropped more than expected in the euro zone in March, data showed on Tuesday, pointing to increased disinflation this year as recession stifles consumer demand.
Producer prices in the 16-country euro currency area fell 0.7 percent month-on-month and 3.1 percent annually, the European Union statistics office, Eurostat, said.
Economists polled by Reuters had expected the prices to decrease 0.5 percent from a month earlier for an annual fall of 2.9 percent year-on-year.
Producer prices show inflationary pressures early in the pipeline as their moves are usually reflected later in consumer prices, which the European Central Bank (ECB) wants to grow by just under 2 percent year-on-year.
Falling prices are a response to flagging demand as the euro zone economy sinks into its worst recession since World War Two on the back of the global financial crisis.
The ECB has cut its main refinancing rate by 300 basis points since October to boost economic growth as inflation has fallen to record lows.
After consumer inflation stayed at 0.6 percent year-on-year for the second month running in April, analysts expect the ECB to cut its main rate by a further 25 basis points to 1 percent on May 7.
Eurostat said the main driver behind the annual fall in producer prices was a 7.3 percent drop in energy costs, thanks to cheaper oil and gas.
Intermediate, or semi-finished, goods prices were down 4.1 percent and those of non-durable consumer goods fell 1.6 percent.
However, prices of durable consumer goods were up 1.8 percent year-on-year and capital goods, or some commodities and raw materials, grew by 1.5 percent.
Eurostat revised its February producer price data to -0.4 percent month-on-month and -1.7 percent yearly from previous readings of -0.5 percent and -1.8 percent respectively. (Reporting by Marcin Grajewski, editing by Dale Hudson)