(Bloomberg) — French inflation eased to its lowest level since July 2021 — bolstering the case for the European Central Bank to continue cutting interest rates after similar slowdowns in Germany and Spain.
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Consumer prices in the euro area’s second-largest economy rose 2.2% from a year ago in August after a 2.7% increase in July, statistics agency Insee said Friday. Economists surveyed by Bloomberg had forecast 2.1%.
Figures for the 20-nation currency bloc, due later in the day, are also expected to show a retreat, to 2.2%. A nowcast from Bloomberg Economics predicts an even sharper drop back to the ECB’s 2% target.
The reports come less than two weeks before policymakers meet in Frankfurt to decide whether softer inflation is sufficient to allow them to further reduce borrowing costs after a first cut in June. Investors reckon recent price trends, along with sluggish economic growth, will prompt the ECB to lower its deposit rate to 3.5% from 3.75%.
Still, some rate-setters have warned that data this year will be volatile and the ECB must look beyond headline numbers to underlying trends, particularly in the services sector.
France’s report on Friday sounded a note of caution on that front as it showed services inflation accelerated to 3.1% from 2.6% in July.
The overall slowdown in French prices could give President Emmanuel Macron some breathing space after opposition parties in snap elections at the start of the summer pressured him to do more to offset the rising cost of living.
The vote delivered a hung parliament and the president is still consulting to find a new prime minister with sufficient cross-party support to govern.
In another boost for Macron, separate data from Insee on Friday showed consumer spending in July rebounded, rising 0.3% from June, when it dropped 0.6%.
However the statistics agency revised down its reading for second-quarter economic growth to 0.2% from 0.3%. Investment was slightly lower than previously reported, as well as the contribution from foreign trade.
–With assistance from Barbara Sladkowska and Joel Rinneby.
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