GlOBAL DEFLATION…

The inflation rate across the 16-nation euro zone fell to zero in May, figures showed Friday, its lowest in 13 years of records, underlining the increasing risk of deflation — a damaging decline in wages and prices that could damp recovery prospects world-wide.

Prices are falling in six of the countries that share the euro. Spain logged a third consecutive month of negative inflation in May, with prices down an estimated 0.8% from the year before. German prices slipped 0.1% this month from May 2008.

The euro-zone estimate of 0% annual inflation for May surprised economists, whose consensus was for a 0.2% rise. Even that would have been the euro zone’s lowest rate since comparable records began in 1996. Economists at Royal Bank of Scotland estimate inflation hasn’t been as low since 1953.

Euro-zone consumers increasingly expect lower prices over the next year. Inflation expectations in May fell to their lowest level since records began in 1990, according to a European Commission survey Thursday. If consumers expect prices to fall, they may hold back on purchases, pushing prices down further.

In Spain, unemployment reached 17.4% in March and prices have been falling since. Some economists dismiss the deflation threat. But a rising number of retailers are giving consumers the option to trade down to discount brands