French inflation falls to two and a half year low as food prices slow

A protester hold a French flag during a pro police demonstration, on Republique square, in Paris, Saturday, Sept. 30, 2023.
A protester hold a French flag during a pro police demonstration, on Republique square, in Paris, Saturday, Sept. 30, 2023. Copyright Lewis Joly/Copyright 2023 The AP. All rights reserved
By Indrabati Lahiri
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Falling services and energy inflation also contributed to March’s reduced inflation print.


The preliminary estimate for the French year-on-year inflation report for March 2024 came out on Friday morning, clocking in at 2.3%, according to INSEE, France. This was the lowest since September 2021, and was also considerably under analyst expectations of 2.6%, as well as February’s 3% print.

This was largely due to food prices increasing at a slower pace, at 1.7% in March, from 3.6% in February, with fresh food prices dropping 3.9%. Tobacco prices also saw a sharp slowdown, rising 10.7% this month, down from 18.7% in February.

Similarly, services prices stabilised somewhat, seeing an increase of 3% in March, down from 3.2% in February. Manufactured goods inched up 0.1% from 0.4% in the previous month, whereas energy prices also dropped from 4.3% last month to 3.4% in March.

The preliminary estimate for month-on-month inflation in March clocked in at 0.2%, down from 0.9% in February. This was also less than market expectations of 0.5%. This was mainly due to petroleum and gas prices falling slightly.

However, seasonal hikes in clothing prices following winter sales put upward pressure on manufactured goods inflation.

French economy expected to grow modestly in 2024

Although inflation has decreased significantly, France is still dealing with more difficult financial conditions in the last few months, due to still-high interest rates by the European Central Bank. This is despite a robust labour market and a slew of government stimulus measures.

France’s economy is likely to grow by about 0.9% this year, according to the European Commission’s Winter Economic Forecast. This is a 0.3 pps down from the Autumn Economic Forecast, and is primarily expected to be due to the lingering effects of the economy slowing down during the latter half of 2023.

However, growth is expected to significantly pick up during the latter half of this year, due to rebounding private consumption, as inflation continues to fall further. Although investments are still likely to be dampened for some time, due to interest rates taking a while to come back down, they are expected to start looking up in late 2024 as well.

The European Central Bank has started dropping subtle hints that it could potentially think about rate cuts this summer. However, it has also maintained in the past that it would be taking a data-driven path towards inflation, due to the dangers of cutting rates too soon or by too much, before inflation is sufficiently under control.

As such, when we might start seeing rate cuts depends entirely on incoming economic data. Policymakers will be looking at things like gross domestic product, labour market, inflation and retail sales reports in particular.

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