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UPDATE 1-Spain may see negative inflation much of yr-cenbank

Published 04/02/2009, 08:38 AM
Updated 04/02/2009, 08:56 AM

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MADRID, April 2 (Reuters) - Spain could see negative inflation for much of this year, Bank of Spain Governor Miguel Angel Fernandez Ordonez told parliament on Thursday.

"It's very possible we'll have negative inflation for (many) months," Ordonez said.

Spain on Monday became the first euro zone country to report negative inflation during the global crisis, with preliminary EU-harmonised consumer price index falling 0.1 percent in March.

March's figure prompted some economists to lower their inflation expectations for the entire euro zone and Ordonez recognized some saw risks of deflation in the region.

"Deflation is a dangerous problem which the European Central Bank must be careful not to fall into because climbing back out again can be very difficult," he said.

A period of negative inflation could be a good thing for Spain which has seen price rises above the European average for 15 years, the governor noted.

"As long as there's no deflation, falling prices is a blessing for Spain," Ordonez said.

(Reporting by Andrew Hay; Writing by Paul Day; Editing by Ron Askew)

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