* Prices fell 0.1 percent year-on-year
* First annual price contraction in euro zone country
* Minister says does not expect deflation
(Adds background, quotes)
By Paul Day
MADRID, March 30 (Reuters) - Spain on Monday became the first euro zone country to report negative inflation during the global crisis, raising chances of lower than expected consumer price growth across the 16-member currency bloc.
Spain's EU-harmonised consumer price index fell to -0.1 percent year-on-year in March, the first negative result in records going back to January 1962, and well below a Reuters forecast of 0.4 percent growth.
Spain's figure followed a larger-than-expected drop in German inflation in March, suggesting euro zone numbers, due Tuesday, could also miss forecasts.
"The risks to our euro zone inflation forecasts are certainly to the downside after this figure," said Citi economist Giada Giani.
The euro zone is expected to report a fall in its March inflation rate to 0.8 percent, down from 1.2 percent in February
A separate European Commission survey on Monday showed record low inflation expectations across the euro bloc. [ID:nLU315482]
Analysts had expected consumer prices to turn negative during Spain's deep recession but were surprised by the speed of the shift and said it raised the spectre of deflation.
"The principal reaction now is that people could think that there will be deflation and postpone purchases indefinitely," said AFI economist, Carlos Maravall.
Economy Minister Pedro Solbes said March's figure did not point to a sustained period of falling prices.
"There is a big difference between negative inflation and deflation and I don't think this figure points to a period of deflation in Spain," Solbes said during a television interview.
EASTER EFFECT
The month's fall was accentuated by the Easter holidays which fell in March last year, provoking a negative base effect.
"Among factors are base effects from an early Easter last year, strong food and energy base effects and, given weakness in the economy, it's only right to see inflation moderating sharply," said economist Eoin O'Callaghan at BNP.
The Spanish data marked the eighth consecutive month in which annual inflation has slowed.
"The recession in the domestic economy is deepening so fast that it is taking prices to previously unseen and surprisingly low levels," Giadi said.
The Spanish economy entered its first recession for 15 years in the second half of 2008 and the government has said it doesn't expect a recovery until 2010.
On Monday, Solbes said Spain's deep economic downturn had yet to touch bottom.
"There have been some slightly more positive indicators, but we can't conclude that we have hit bottom yet," Solbes said during the television interview on Monday.
Spain's National Statistics Institute will report full, final March inflation data on April 15. (Reporting by Paul Day; Editing by Toby Chopra)