(Removes extraneous word from headline and first paragraph)
* Producer prices rise y/y only in three euro zone countries
* Energy costs remain main drag
* ECB facing dilemma how to respond to slowing inflation
* For TABLE pls see
BRUSSELS, Sept 2 A drop in highly volatile
energy prices depressed euro zone producer prices in July as
expected, underlining disinflationary pressures in the single
currency area ahead of the European Central Bank's monetary
policy meeting on Thursday.
Prices at factory gates in the 18 countries sharing the euro
fell as anticipated by 0.1 percent in July against June and
dropped 1.1 percent on the year, the EU's statistics office
Eurostat said on Tuesday.
The annual drop was the steepest since April's 1.2 percent
Producer prices are an early indication of price trends.
Unless their fluctuations are absorbed by retailers, they
eventually translate into consumer inflation or deflation.
Both the monthly and the annual declines were influenced by
a 0.6 percent and 3.5 percent drop respectively in the costs of
energy, data showed.
Prices in all other sectors, such as durable and non-durable
consumer goods, were flat in July when compared with June.
The ECB meets on Thursday, facing a dilemma how to respond
to vanishing inflation in the 9.6 trillion euro economy whose
recovery unexpectedly stalled in the second quarter, only two
months after an interest rate cut in June.
A majority of economists expect the ECB to stay on hold in
September and wait for effects of its last rate cut to kick in,
including targeted longer-term refinancing operations aimed to
boost bank landing.
Producer prices in July, when compared with the same period
last year, rose only in three euro zone countries - Estonia,
Ireland and Latvia and were flat in the twice bailed-out Greece.
The largest year-on-year drop was recorded in Belgium with a
5.7 percent decline, followed by Slovakia's 2.9 percent annual
(Reporting by Martin Santa)