Euro zone inflation dipped into negative territory for the first time in June as consumer prices fell 0.1 per cent year-on-year, slightly less than expected, data showed today.
The flash estimate from European Union statistics office Eurostat compared with unchanged consumer prices in the 16-nation currency area in May. June marked the first month of negative inflation since the creation of the euro zone in 1999.
Prices have fallen because energy and food were more expensive a year ago and the worst economic crisis since World War Two has eroded companies' pricing power, analysts say.
Declining prices may help boost consumer demand, which is key to restore economic growth. The Eurostat estimate gave no monthly figure or a more detailed breakdown, which will be published in mid-July.
The inflation figure is unlikely to change analysts' expectations that the European Central Bank will keep its main interest rate unchanged at 1 per cent when it meets on Thursday.
The ECB wants annual price gains to be just below 2 per cent over the medium term and to avoid deflation, which it defines as a prolonged and widespread decline in prices coupled with consumers' expectations of further falls.
The ECB has said consumer prices were likely to fall for a few months in mid-year because of comparison effects with record high oil and food costs a year before, but that price growth would resume later.
UniCredit economists said today they expected euro zone inflation to hit a trough in July at -0.4 per cent.
Recent data showed inflation unexpectedly returned in Germany, with 0.1 per cent growth in prices year-on-year in June after they stagnated in May.
In Spain, prices fell for the third consecutive month in June, by 1 per cent year-on-year, slightly less than expected. Belgium's inflation was -1.1 per cent, the lowest since 1955.
Reuters