RTTNews - French annual inflation fell into negative territory in May for the first since 1957, driven by a large decrease in energy prices, official data showed Friday.

The consumer price index or CPI dropped 0.3% year-on-year in May after rising 0.1% in April, statistical office INSEE said. The decline was more than the 0.2% fall predicted by economists and was led by a 17.1% decrease in energy prices. On a monthly basis, the CPI rose 0.2%.

Commenting on the inflation figures, French Economy Minister Christine Lagarde said the economy did not enter into deflation and the temporary decline in prices would support consumption given the rise in unemployment.

However, most economists expect the headline inflation to remain negative in the coming months.

The core annual inflation remained at 1.6% for the third consecutive month, while the monthly rate stood at 0.1%. The harmonized index of consumer prices or HICP were up 0.1% month-on-month, while it dropped 0.3% annually.

Easing inflation is expected to provide some comfort for French households, who are facing the threat of unemployment. The worst recession since the Second World War has thrown thousands of French out of their job and more are expecting to be jobless in the coming months.

The second largest Eurozone economy contracted 1.2% in the first quarter from the previous three months, extending the downward trend that started in the second quarter of 2008. The European Commission forecasts the French economy to contract 3% this year and by 0.2% in 2010.

Also on Friday, the Bank of France said the French current account deficit narrowed slightly to EUR 3.1 billion in April from EUR 3.2 billion deficit in March.

For comments and feedback: contact editorial@rttnews.com