French Inflation Experiences Surprisingly Strong Downtrend | snaps

This easing of price pressures and the return of inflation to below 2% is very good news for the European Central Bank, which will have a stronger case for further rate cuts in the coming months. This is all the more true as the decline in inflation in France will continue.

Energy inflation could remain negative as oil prices in euros are expected to remain below last year’s levels in the next few months. In addition, regulated electricity prices are expected to fall by 15% in February 2025. Unless transportation costs rise further due to instability in the Red Sea, manufacturing prices are likely to remain very weak in the coming months amid slowing global demand and Chinese overcapacity. There are also no signs of food inflation accelerating any time soon.

Finally, inflation in the services sector is likely to remain the main driver of inflation in the coming months, as past wage increases continue to be passed on by companies in prices. However, companies’ pricing intentions are heading in the right direction and the slowdown in economic activity in France is leading to lower demand dynamics, which does not represent a favorable environment for price increases. As a result, service sector inflation could weaken further in the coming months and gradually reach 2%.

All in all, inflation in France should continue to fall, and more quickly than expected. We expect it to remain below 2% in the final months of 2024 and, barring a negative geopolitical shock, to remain below 2% in 2025.