(Bloomberg) -- French inflation accelerated in December, supporting the European Central Bank’s plan to only lower interest rates gradually.
Consumer prices in the euro area’s second-largest economy were up 1.8% from a year ago in December — faster than November’s 1.7%, statistics agency Insee said. Still, economists in a Bloomberg survey had estimated a quicker increase of 1.9%.
France’s data follow hotter readings in both Germany and Spain and come before a euro-area release later Tuesday that’s likely to show an uptick to 2.4% from 2.2%. A separate report from the ECB showed that inflation expectations of consumers in the euro area increased in November.
Stronger price pressures in the currency bloc make it less likely that the ECB will deviate from a path of quarter-point cuts at its coming meetings, despite some policymakers floating bigger moves.
With inflation having retreated rapidly last year, investors currently expect four more reductions in the deposit rate in 2025, to 2% from 3% now. The first will probably come at the next meeting on Jan. 30.
After December’s cut, Bank of France Governor Francois Villeroy de Galhau said the ECB can continue to adjust its monetary policy in terms of the size and pace of cuts, and in how it communicates.
In France, energy fueled the sightly higher inflation reading while prices for manufactured goods declined on year. In services, which is closely watched as an indicator of underlying momentum, the inflation rate was unchanged in December at 2.3%.
What Bloomberg Economics Says...
“We expect the disinflationary trend to resume in January but further unfavorable base effects from pump prices are likely to create some bumps over the next couple of months — we see French inflation staying below 2% for most of 2025.”
—Eleonora Mavroeidi, economist. For full react, click here
Lingering price pressure and the prospect of only gradual monetary-policy loosening adds to headaches for France’s government as it struggles to plug holes in public finances and rein in debt-servicing costs.
The country is currently relying on emergency legislation to avoid a shutdown after Prime Minister Michel Barnier’s government collapsed in December. The turmoil of recent months has sparked selloffs in French assets that have pushed up borrowing cost compared with European peers.
--With assistance from Barbara Sladkowska, Joel Rinneby and Alexander Weber.
(Updates with ECB consumer inflation expectations in third paragraph, Bloomberg Economics after sixth paragraph)
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