Consumer prices in the euro zone fell at a record annual rate of 0.6% in July, according to an early estimate from the EU's Eurostat agency. This follows a fall of 0.1% in June, the first in the euro zone's history.
After hitting a record high point of 4% in June and July 2008, euro zone inflation has fallen sharply as oil and other commodity prices have collapsed in the face of the global economic downturn.
Most economists had expected that euro zone inflation would dip briefly into negative territory but have ruled out a longer Japanese-like bout of deflation, a pernicious downward spiral in prices.
Deflation can wreak havoc on the broader economy as households put off purchases in hope of getting a better bargain in the future, undermining demand and in turn investment in new production.
Separate Eurostat figures show that the euro zone's unemployment rate rose slightly in June as companies continued to shed jobs.
Seasonally adjusted unemployment stood at 9.4%, up from 9.3% in May. The figure stood at 7.5% 12 months ago. It meant that the number of people out of work rose by 158,000 over the month, to bring the total number of job seekers in the single currency bloc to 14.9 million.
