Prices stopped growing year-on-year in the euro zone in May for the first time and economists expect them to fall in June and July, raising the risk of deflation.
Consumer prices were unchanged year-on-year in the 16-country euro area this month after increases of 0.6 per cent in March and April, the European Union's statistics office said on Friday.
Economists in a Reuters poll published on May 22 had expected prices this month to rise by 0.2 per cent.
“The figure shows that the risk of deflation in the euro area is not negligible,” said Juergen Michels, economist at Citigroup.
The Eurostat estimate gave no monthly figure or a more detailed breakdown, but economists expected inflation to have slowed because oil was much less expensive than a year ago.
BNP Paribas economist Eoin O'Callaghan said he expected prices in the euro zone to fall 0.3 percent year-on-year in June and 0.7 per cent in July.
The European Central Bank wants annual price gains to be just below 2 per cent over the medium term to avoid deflation, which it defines as a prolonged and widespread decline in prices coupled with consumers' expectations of further falls.
While the downside risk of prolonged deflation is still unlikely, we are increasingly convinced that the ECB could have a fight on its hands to get inflation back near 2 per cent next year,” said Colin Ellis, economist at Daiwa Securities.
Prices in May stopped growing in Germany, the euro zone's biggest economy, turned negative in Belgium for the first time since 1960 and fell for the second month in a row in Spain.
The ECB has said consumer prices were likely to fall for a few months in mid-year because of comparison effects with record high oil and food costs the year before, but that price growth would resume later.
It has said that it therefore does not expect deflation.
“The likelihood of deflation, in the sense of a protracted decline in the general price level, now appears slight," ECB Governing Council member Mario Draghi said in Rome.
But economists said such a risk was growing.
"With spare capacity rocketing and the slowing labour market set to place downward pressure on wage growth, the chances of a more prolonged and damaging period of deflation appear to be growing," said Ben May, economist at Capital Economics.
The ECB has lowered its main refinancing rate to a record low of 1 per cent to boost credit and consumption and announced it would buy €60 billion ($84 billion) of corporate debt.
Economists said that unless clear signs emerged that the economic downturn was gathering pace again, the bank was unlikely to launch further measures to support the economy.