French Inflation Dips Below 2% for First Time Since August 2021

France’s inflation rate dropped to 1.9% in August, marking the first time it fell below the symbolic 2% threshold since August 2021, according to the National Institute of Statistics and Economic Studies (INSEE). The decline was attributed to a sharp deceleration in energy prices, which rose only 0.5% year-on-year in August, compared to a nearly 7% increase a year earlier. Food prices also rose by 0.5% annually in August, a rate consistent with July, while service prices, which have a greater impact on the overall index, increased by 3.1% year-on-year. The dip in inflation in France, following a similar trend in Germany, is expected to further encourage the European Central Bank (ECB) to reduce interest rates again at its meeting on September 12th. Elmar Volker, an economist at LBBW, suggests that the inflation data for France, Germany, and Spain provide sufficient support for another 25 basis point cut in key interest rates in September. Household spending in France saw a slight recovery in July, increasing by 0.3% in volume compared to June. This increase follows a 0.6% decline the previous month, based on revised INSEE data. Similarly, household energy consumption, accounting for one-fifth of household spending on goods, showed a positive trend. It strengthened in July (+0.9%), after a substantial drop in June (-1.7%), mainly driven by an increase in fuel consumption, particularly for unleaded gasoline. The INSEE expects spending on electricity and natural gas to decrease in the future.