Euro zone inflation may turn negative

A euro sculpture is pictured in front of the headquarter of the European Central Bank (ECB) in Frankfurt, January 15, 2009.

LONDON (Reuters) - Euro zone inflation is forecast to have slipped into negative territory for the first time in the trading bloc's history in June, dragged down by lower energy and food prices, data are expected to show on Tuesday.

A Reuters poll of 37 economists showed inflation at -0.2 percent year-on-year this month, after prices remained flat in May, a long way from the European Central Bank's target of close to but below 2 percent.

Forecasts for June ranged from -0.4 percent to remaining flat.

"Euro zone headline CPI is set to go negative this month on the impact of last year's energy price hikes," said analysts at Standard Chartered.

A favourable base effect will have brought the current rate down as at this time last year energy prices were surging, but there is little fear of a prolonged bout of deflation.

A separate Reuters poll earlier this month saw inflation averaging -0.2 percent in the second quarter of this year but picking up in the second half of the year and into 2010. "It will not remain in negative territory for long. In the course of the second half of the year, the trend in crude oil prices will boost inflation again," said Christoph Balz at Commerzbank.

The ECB has warned that the euro zone could see a short spell of falling prices over the next few months, although it would only be temporary and not lead to a sustained spell of deflation.

On Sunday central bank President Jean-Claude Trichet dismissed concerns over the possible threat of deflation and said the ECB would guarantee price stability over the medium term.

Figures released earlier on Friday showed annual inflation in Germany, the bloc's largest economy, stood at 0.1 percent in June after hitting zero in May.

But data on Monday is expected to show Spain's consumer prices fell at a record 1.2 percent this month, marking the fourth consecutive month of negative inflation.

Falling inflation in the region will support the ECB's decision to slash interest rates to just 1.0 percent at the start of May and its plans to buy up to 60 billion euros of covered bonds to boost an economy in the throes of recession.

The 16-nation bloc's economy shrank 2.5 percent in the first quarter, its deepest contraction on record and the ECB is expected to leave rates alone until at least the end of the third quarter next year.

(Reporting by Jonathan Cable, Polling by Bangalore Polling Unit)