Euro-area manufacturers have started to pass on the latest oil-price slump to their customers.

Factory-gate prices fell in September for the first time in six months as input costs declined at the fastest pace since January, London-based Markit Economics said in a report on Thursday.

A Purchasing Managers’ Index for the manufacturing industry fell to 52 last month from 52.3, in line with a September 23rd preliminary reading.

The European Central Bank is closely watching the impact of the slide in energy costs on the wider economy. Consumer prices in the 19-nation euro area contracted in September for the first time since March, rekindling speculation that policy makers will need to expand their €1.1 trillion asset- purchase program to revive inflation.

“Despite unprecedented central-bank stimulus and substantial currency depreciation, the euro- zone manufacturing sector is failing to achieve significant growth momentum and even risks stalling again,” said Chris Williamson, chief economist at Markit. With prices charged by manufacturers falling, “deflation worries will intensify and put pressure on the ECB to act more aggressively,” he said.

The price setback comes just as the region’s economic recovery shows signs of strengthening. Economic confidence unexpectedly increased in September to the highest in more than four years as sentiment in the industrial and services sectors improved, despite weakening growth in emerging markets.

Consumer spending is benefiting from slowly receding unemployment. Companies are stepping up output in response to a rising inflow of new orders, according to the report. A measure for French manufacturing is indicating growth for the first time in three months, leaving Greece as the only nation with a gauge signaling contraction.

While the euro area is on track for an economic expansion of 0.4 per cent in the third quarter, the same rate it recorded in the previous period, manufacturing is set to grow only at a modest pace, according to Markit. “The manufacturing sector is likely to provide only a minor boost to the overall economy in the third quarter,” Williamson said.

“Export orders rose at a slower rate in September, in part reflecting weaker demand from emerging markets, with the darkening global economic picture dampening business optimism and causing companies to pull-back on their hiring plans.”

Bloomberg