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UPDATE 1-ECB's Sramko: deflation risks in euro zone low

Published 06/16/2009, 08:08 AM
Updated 06/16/2009, 08:17 AM

* Sramko says risks of deflation low

* Prices may drop in the summer in some countries

(Adds background)

BRATISLAVA, June 16 (Reuters) - The risk of deflation in the euro zone is low at the moment despite possible price drops in the summer, ECB Governing Council member Ivan Sramko said on Tuesday.

"The official estimate says that in some countries, there could be negative growth in prices in the summer," the Slovak central bank governor said.

"But even if there is deflation development of prices -- if we can call it deflation development -- in some summer months, it is not expected in the annual figure. Therefore, the risk of deflation is low, so far," he told a news conference.

Sramko made the comments after the Slovak central bank cut its Slovak gross domestic product forecast to a 4.2 percent contraction this year compared with the previous prediction for a 2.4 percent drop..

It cut the forecast 2009 average Slovak inflation calculated under EU norms to 1.3 percent from the previous estimate of 1.7 percent.

A hefty drop in oil costs brought euro zone inflation to its first ever standstill in May, data confirmed on Tuesday, and economists expect consumer prices to start falling in June.

But despite the depth of the recession and a sharp rise in unemployment, wages in the 16-country area grew during the first quarter at almost the same pace as a year earlier, helping potential household demand.

Consumer prices grew by 0.1 percent month-on-month in May and were unchanged year-on-year. Energy prices rose 0.4 percent on the month and fell 11.6 percent on the year, European Union statistics office Eurostat said.

The ECB, which wants annual inflation to be just below 2 percent, cut its main refinancing rate to a record low of 1 percent in May to help the flow of credit in the economy. (Reporting by Peter Laca; editing by Stephen Nisbet)

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