UPDATE 2-Slovenian March inflation soars to 5-year high

                                
 (Updates with reaction of finance ministry in paras 11-12)
                                
 By Marja Novak
                                
 LJUBLJANA, March 31 (Reuters) - Inflation in euro zone
newcomer Slovenia jumped to a 5-year high in March, 15 months
after the country joined the euro zone, a move blamed by most
Slovenians for steep prices rises.
                                
 The statistical office reported on Monday year-on-year
inflation jumped to 6.6 percent in March from 6.4 percent in
February, which analysts said put pressure on the government to
resist demands for steep public wage increases.
                                
 Inflation was boosted mainly by the prices of shoes, clothes
and oil products. Prices rose 1.3 percent month-on-month,
compared with a fall of 0.1 percent in February.
                                
 Inflation has been growing everywhere in the 15-nation euro
zone due to high energy and food prices. It rose to 3.5 percent
in the currency area in March from 3.3 percent in February.
                                
 But Slovenia's fast-growing economy has seen prices grow
much faster than expected since it adopted the euro in 2007,
prompting frequent complaints from citizens.
                                
 "The main risk is that (inflation) will become entrenched
through higher wage increases and higher government spending,"
Christian Jenni, an analyst at rating agency D&B, told Reuters.
                                
 "This could further increase price growth and could end in a
wage-price spiral," he added.
                                
 In January, the government agreed to a 3.4 percent rise of
public sector salaries this year but negotiations for further
rises in some parts of the sector are still under way.
                                
 Private sector trade unions are also demanding a general
wage increase due to high inflation.
                                
 The government's Institute of Macroeconomic Analysis and
Development said it expected inflation to calm down over the
next few months, adding December year-on-year inflation is
expected to be below the 5.7 percent seen in December last year.
                                
 The Ministry of Finance said, however, that there are still
inflation risks based on oil prices.
                                
 "We expect that the main pressure on prices will calm down
over the medium-term. Inflation will slowly decrease. But a risk
of a rise in inflation, connected to growth of oil prices, still
exists," the ministry said in a statement.
                                
 
                                
 DEFICIT DOWN
                                
 The statistics office also reported the 2007 fiscal deficit
fell to 0.1 percent of gross domestic product (GDP) from 1.2
percent in 2006. The government expects the deficit to rise to
0.9 percent of GDP this year.
                                
 The government said in January it expected a fiscal surplus
of some 0.1 percent of GDP this year.
                                
 Although the deficit was at the lowest level since
Slovenia's independence in 1991, analysts said the government
should lead a very restrictive policy to prevent it from rising
significantly over the following years.
                                
 The statistics office also reported a fall in 2007 general
government debt to 24.1 percent of GDP from 27.1 percent in
2006, and the government expects it to fall to 23.4 percent of
GDP this year.
 (Reporting by Marja Novak and Marcin Grajewski; Editing by
Gerrard Raven)