Georgia has posted a second consecutive month of annual deflation, with its year-on-year inflation rate dropping to minus 2.2 percent in March.

The state statistical agency of the South Caucasus country reported on Tuesday that Georgia's annual inflation slipped to minus 2.2 percent in March, further down from minus 2.1 percent in the previous month, when inflation slid into deflation for the first time in 30 months.

The agency attributed the further decrease to falling food prices and communication cost.

In January, the annual inflation rate was 0.2 percent, already very low. The country had, as recently as in May last year, recorded a 10-year high of 14.3 percent in annual inflation.

The Georgian central bank, the National Bank of Georgia, has kept its key lending rate unchanged at 6.5 percent.

Georgia ended 2010 with a high annual inflation rate of 11.2 percent. And it ended last year with an annual inflation of 2 percent.

The central bank, however, showed worries about the overall economic conditions in western Europe.

"The expected decline in the economic activity of EU countries will have a negative impact on the trade balance of Georgia, which will possibly result in additional weakening of the aggregate demand in the country," the bank said in its recent policy report.

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