German inflation rate seen at zero

Inflation in Germany, Europe's biggest economy, has dropped to zero for the first time in 22 years, according to preliminary government figures released Wednesday.

The Federal Statistical Office said the inflation rate fell to zero in May from 0.7 percent in April. Germany has not seen inflation that low in the 20 years since reunification; West Germany recorded zero inflation in May 1987.

Inflation in Germany has declined sharply as a result of falling oil prices since peaking last June and July at 3.3 percent.

Economist Alexander Koch at UniCredit in Munich predicted noted that energy prices peaked last July so their effect "should bring the (annual) headline rate below zero in the coming months" despite the recent rise in oil prices.

Energy prices should start adding to inflation again after July, he said.

The statistical office said that, in May, consumer prices were down 0.1 percent on the month.

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European Union statistics have shown that inflation in the 16-nation euro zone was steady at 0.6 percent in the year to April, unchanged from the previous month.

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Four nations that use the euro — Ireland, Portugal, Spain and Luxembourg — have reported deflation, or a real fall in prices, this year.

Serious deflation can mean a vicious spiral of falling prices that cripples investment, magnifies debts and hurts growth.

Wednesday's estimate was based on data from six of Germany's 16 states. Final figures are due on June 10 but they rarely deviate from the preliminary estimate.