French inflation unexpectedly eased to a five-year low, staying well short of the European Central Bank’s 2% target as energy prices fell.
Consumer prices rose 0.4% from a year ago in January after a 0.7% advance the previous month, statistics agency Insee said. That’s below the 0.6% median estimate of 20 analysts polled by Bloomberg. Only one predicted the outcome, which was the weakest pace since December 2020.
French inflation has been an outlier among the euro zone’s biggest economies and Tuesday’s data are unlikely to worry ECB officials gathering this week in Frankfurt to set borrowing costs. With price gains in the bloc as a whole running close to 2%, they’re expected to leave the deposit rate unchanged.
Indeed, inflation in other parts of the region is much nearer the ECB’s goal: Germany’s reading was 2.1% last month, while Spain’s was 2.4%.
What Bloomberg Economics Says…
“France’s downside inflation surprise in January mostly reflects temporary factors. Price gains have likely bottomed out now and and should start slowly edging higher, driven by electricity-related base effects. Even so, the latest reading confirms that underlying inflation dynamics remain particularly muted overall. Risks ahead are substantially skewed to the downside, reflecting the drag from a strong euro.”
French central-bank chief Francois Villeroy de Galhau has warned that Europe’s downside price risks are at least as significant as upside. The recent rally in the euro could act as another drag on prices.
As well as energy, French inflation was weighed down in January by manufactured products — particularly clothing and shoes amid a longer period of winter sales than a year earlier. The price measure for services — which has been a special focus of the ECB — slowed below 2% for the first time in four years.