(Recasts with economists, detail, background)
By Jan Strupczewski
BRUSSELS, Jan 7 (Reuters) - Euro zone producer prices logged a record monthly fall in November on a sharp drop in energy costs, signalling low inflationary pressure and firming the case for a deep European Central Bank interest rate cut next week.
Prices at factory gates in the 15 countries using the euro in November fell 1.9 percent month-on-month for a year-on-year rise of 3.3 percent, the European Union statistics office, Eurostat, said on Wednesday.
The 1.9 percent monthly decline was the biggest since Eurostat records for producer prices began in 1981, the office said. Economists polled by Reuters had expected a 1.0 percent monthly fall and a 4.3 percent annual rise.
"The November producer price inflation adds to the substantial and widespread evidence that inflationary pressures in the euro zone are retreating sharply," said Howard Archer, economist at IHS Global Insight.
"Given widespread evidence of sharply diminishing inflationary pressures and deepening euro zone recession, we believe there is a compelling case for the ECB to cut interest rates appreciably ... at its 15 January policy meeting."
Producer prices are an indication of inflationary pressure because their rises, unless absorbed by retailers via lower profit margins, are eventually passed on to consumers.
Euro zone consumer price inflation plunged to 1.6 percent year-on-year in December from 2.1 percent in November, Eurostat estimated on Tuesday. The ECB aims for inflation in the euro zone of just below 2 percent.
The bank has slashed rates by 175 basis points since October to 2.5 percent, saying inflation pressures were falling. Most economists expect it to cut again by 50 basis points next week.
"The important thing here is not so much the data but the fact that some ECB members are stating the importance of not allowing inflation to fall too far, thus creating a need to keep the easing process going," Steve Barrow of Standard Bank said.
"The PPI fits into all that with a lower-than-expected figure, with energy a very large part of the reason," he said.
ECB WORRIES "JUSTIFIED"
It clearly indicates that downward pressure on consumer prices will remain and justifies the worries of some ECB members over inflation staying below 2 percent, and the consequence is that the ECB will keep easing, Barrow said.
ECB Governing Council member Vitor Constancio said on Tuesday the bank should preemptively cut interest rates to avoid inflation falling too far below 2 percent, but added that deflation was not on the horizon for Europe.
The bank's Vice-President Lucas Papademos said on Sunday that more rate cuts may be needed to shield the euro zone economy and make sure inflation did not fall too far, stressing that deflation would be kept at bay.
Producer prices fell month-on-month because of a 5.1 percent monthly drop in energy costs. This slowed the annual increase in energy to 6.3 percent in November from 15.9 percent in October.
What some economists call core producer price inflation, which excludes energy and construction, was minus 0.8 percent on the month while its annual growth slowed to 2.3 percent from 3.2 percent in October, the data showed. (Editing by Dale Hudson)