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UPDATE 2-Slovenia FM sounds deflation alert, c.bank demurs

Published 11/28/2008, 09:07 AM

(Updates and recasts with central bank, analyst's quotes)

By Marja Novak

LJUBLJANA, Nov 28 (Reuters) - Finance Minister France Krizanic said he believes Slovenia is caught in a deflationary spiral that could spread across Europe, but the central bank's chief analyst disagreed and said the chances of deflation were slim.

Speaking after data showed Slovenian consumer prices dipped 0.9 percent in November, Krizanic told Reuters on Friday by telephone: "This is a deflation crisis that could lead to job losses. We can expect deflation (in Slovenia) to continue for some more months".

Krizanic, a member of the centre-left government that took office last week, said negative price growth could also affect the rest of the 15-member euro zone, where data published on Friday showed annual inflation fell to 2.1 percent in November from 3.2 percent in October.

However, Damjan Kozamernik, who heads the Bank of Slovenia's analytical and research centre, said he saw no danger of deflation, either in the euro zone or in Slovenia.

He said Slovenia's core inflation, which excludes fuel and food prices, was still at a relatively high annual level of 3.6 percent in November, down from 3.9 percent in October, which indicates there are no deflation pressures.

The Slovenian statistics office earlier reported that EU-harmonised consumer prices fell 0.9 percent in November, while year-on-year inflation tumbled to 2.9 percent from 4.8 percent in October.

"We do not expect deflation in the euro area," Kozamernik said.

"Monetary policy will probably become more expansive, pro-active, now that inflation is a more distant problem. Chances for deflation in the euro zone are very small."

Christian Jenni of credit rating agency D&B said sharp falls in commodities prices and a widespread growth slowdown were "nurturing fears of deflation" in Slovenia and the euro zone.

"But I would not go as far as saying there will be deflation, I would wait a few more months," he said.

Slovenia, which adopted the euro in January 2007, expects unemployment to rise next year due to the economic slowdown, after it reached a record low of 4.1 percent in the third quarter of 2008. (Reporting by Marja Novak, Edited by Zoran Radosavljevic and John Stonestreet)

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