French inflation holds at record, defying European slowdown

FRENCH inflation unexpectedly remained at a record high in November, defying a slowdown in other parts of the eurozone and weakening calls for the European Central Bank (ECB) to slow the pace of interest rate increases.

Consumer prices in the currency bloc’s second-largest economy rose 7.1 per cent from a year earlier, matching October’s increase, statistics office Insee said on Wednesday (Nov 30). Analysts surveyed by Bloomberg had estimated a 7 per cent rise.

European bonds extended a drop after the data, with 10-year German yields rising as much as 6 basis points to 1.98 per cent before paring the move.

The French report follows softer inflation readings on Tuesday for Germany, Spain and Belgium. Data for the 19-member eurozone as a whole are due later Wednesday, with economists also estimating a slight moderation – the first in 1 1/2 years.

That will provide ECB policymakers with their last update on prices before they must decide on Dec 15 how steeply to lift borrowing costs to help wrest record price gains back towards the 2 per cent target.

Officials have opted for back-to-back hikes of 75 basis points at the last two meetings. The question now is whether they’ll slow that momentum to a half point, especially as the continent teeters on the brink of a recession.

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There’s certainly no consensus on doing so. ECB president Christine Lagarde said on Monday that she’d be “surprised” if inflation has peaked, while Executive Board member Isabel Schnabel said recently that it may be too early to slow down.

The strength of core inflation – a measure that strips out energy and food prices – may also give hawkish policymakers an argument to stick to big increments when raising rates. Economists expect that reading to be stable at 5 per cent in November, even as the headline number dips.

France’s report showed an acceleration in price gains for food and manufactured goods, while energy costs for households softened, even as the government reduced a discount on diesel and petrol. The price of services rose 3 per cent on the year – slightly less than the 3.1 per cent seen in October.

A separate release from Insee showed that rising prices are hurting consumers, who cut back on outlays for energy, manufactured goods and food in October. Overall, household spending fell 2.8 per cent – the sharpest month-on-month decline since April 2021. Analysts surveyed by Bloomberg had expected a 1 per cent decline. BLOOMBERG