Falling French inflation sparks hope of end to Europe’s price surge

Falling French inflation sparks hope of end to Europe’s price surge
5 Jan 2023

Lower energy prices helped reduce inflation in France, while European stocks rose on growing expectations that inflation has peaked across the region. The French consumer price index (CPI) registered a year-on-year rise of 5.9% in December, compared to the 6.2% rise in November, according to the preliminary estimate of the National Institute of Statistics and Economic Studies. (INSEE). French Economy Minister Bruno Le Maire told France Inter radio that inflation would follow a downward trend throughout this year.

For its part, French harmonized inflation, used by Eurostat in its statistics, fell to 6.7% year-on-year in December, compared to economists' expectations of a slight increase after the 7.1% figure registered in November.

After knowing the inflation data, the European stock markets continued to rise at the start of 2023. The Stoxx 600 rose 0.9%, which represents a rise of almost 3% this week. According to Financial Times calculations based on Refinitiv data, stocks in the region are on pace to post one of their five best results in the first five trading days of any year since 1987.

The measure of harmonized prices - compiled by Insee, the French statistics agency - follows similar declines in Spain and Germany and boosted expectations that eurozone headline inflation will fall sharply after last year's rise to double-digit levels. .

The stock markets of France, Germany and Spain have appreciated by a similar margin in the first trading days of the year thanks to better than expected data.

A sharper-than-expected drop in inflation in the first few months of 2023 would allow the European Central Bank, which aggressively raised borrowing costs throughout 2022 to offset record prices, to stop raising rates before the summer.

Eurozone inflation is expected to fall to single digits for the first time in three months thanks to falling energy prices paid by households and businesses in the region, a consequence of measures by governments in the region to keep the cost of gas under control and warmer than usual weather in recent months.

However, data released this week also indicates that while falling energy prices have reduced headline inflation, underlying price pressures on other goods and services have remained broadly unchanged or even continued to rise. . Core inflation – which excludes changes in energy and food prices – rose in Spain, and Germany posted higher services inflation, although the pace of growth in services prices also slowed in France.


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