Major drop

The 4.6 percent decline in the cost of goods at the factory gate is far worse than the May decrease of 3.6 percent. It's also a sharper drop than widely expected, marking the strongest year-on-year decline since 1968. However, on a monthly basis, producer prices only dropped by 0.1 percent.

The figures can be partially explained by energy prices, which were especially high in June 2008. The national statistics office Destatis, which published the findings, said that if changing energy prices were taken into account, then the drop would have been a more modest 2.8 percent on the year. The cost of energy this June was 8.4 percent lower than in 2008.

Figures like these fuel concern of deflation within the 16-nation eurozone, where consumer prices fell for the first time on record in June.

As the world's leading exporter, Germany's economy is particularly sensitive to the price of goods. The country is in the midst of its worst recession since 1945, in the first quarter of 2009 economic activity contracted by 3.8 percent compared to the previous quarter.

msh/afpe/Reuters

Editor: Neil King