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French inflation fell less than expected in February as faster growth in energy prices offset a sharp slowdown in food costs, denting hopes that the European Central Bank will cut interest rates soon.
Slower growth in French food and manufactured goods prices drove inflation in the eurozone’s second-largest economy down to 3.1 per cent in the year to February, from 3.4 per cent a month earlier, the national statistics agency said on Thursday.
The latest reading was its lowest level since September 2021 but was slightly above the 3 per cent level forecast by economists in an earlier Reuters poll.
Inflation in Spain fell in line with forecasts to 2.9 per cent in February, taking it back below 3 per cent for the first time in six months, but an acceleration in fuel prices partly offset lower growth in electricity costs, according to the country’s statistics office.
Since the disruption of the coronavirus pandemic and Russia’s invasion of Ukraine triggered the biggest surge in consumer prices for a generation, eurozone inflation has been slowing rapidly, leaving ECB policymakers trying to gauge how fast it will drop to their 2 per cent target.
German inflation figures are due to be released later on Thursday before eurozone-wide data is published on Friday, setting the tone for discussions about the timing of rate cuts at the ECB’s meeting next week.
ECB president Christine Lagarde told the European parliament this week that price growth was expected to “continue slowing down, as the impact of past upward shocks fades and tight financing conditions help to push down inflation”.
However, Lagarde said wage growth remained strong and would be “an increasingly important driver of inflation dynamics in the coming quarters, reflecting employee demand for inflation compensation and tight labour markets”.
The ECB plans to release new price growth forecasts after its meeting next week. Goldman Sachs expects it to cut its forecast for eurozone inflation this year from 2.7 per cent to 2.3 per cent and for next year from 2.1 per cent to 2 per cent — in line with the ECB’s target.
French consumers remained cautious at the start of this year despite lower inflation. Household spending on goods fell 0.3 per cent in January from the previous month, the statistics agency said, suggesting record high eurozone policy rates of 4 per cent were still weighing on demand.
Source: Economy - ft.com
