Germany inflation

Initial data from the Federal Statistics Office showed inflation had dropped from 0.7 percent in April to zero, the lowest figure since May 1987.

The data are based on early results from six of Germany's sixteen states. The sharp decline is thought to be a consequence of the drop in energy prices over the last few months.

"Underlying inflation should continue its downward trend for the rest of this year," said economist Alexander Koch of UniCredit.

"Massive excess capacities worldwide and the bleak labor market outlook in Germany clearly signal abating inflationary pressures in the short term," he said.

Brief period of deflation before oil prices climb

Koch and other analysts predict that inflation will sink to negative numbers during the course of the summer, before picking up again toward the end of the year.

Final figures are due out on June 10, but analysts say they rarely deviate significantly from the preliminary estimate.

Inflation across Europe has also dropped and economists generally expect the 16-nation euro zone, where inflation stood at 0.6 percent in April, to dip into a brief period of deflation. But, with oil prices beginning to head higher, analysts say they do not believe there will be a prolonged period of declining prices.

gb/dpa/AP/AFP

Editor: Susan Houlton