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(Bloomberg) — French inflation came in below the European Central Bank’s 2% target for the second consecutive month, supporting the case for continued interest-rate cuts.
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Consumer prices in the euro area’s second-largest economy rose 1.5% from a year ago in October, statistics agency Insee said on Thursday. The reading is in line with the median estimate in a Bloomberg survey of analysts and compares with 1.4% in September.
Cooling inflation across the 20-nation euro zone has allowed the ECB to lower its deposit rate three times this year, and policymakers expect further reductions. Still, they have increasingly divergent views on the timing and overall amount, and the ECB expects a bumpy road before sustainably reaching its target in the first half of 2025.
A drop in energy costs helped to keep inflation below target in France. Closely watched services prices also moved closer to the goal, rising 2.2%.
The challenges faced in deciding on the pace and extent of further monetary-policy easing were highlighted by data from Germany on Wednesday that showed the pace of consumer-price rises quickened more sharply than expected, to 2.4% from 1.8% the previous month.
What Bloomberg Economics Says…
“Further unfavorable base effects from pump prices are likely to push up the French headline reading over the next couple of months, but we expect the gradual easing in underlying cost pressures will help keep a lid on the increase and we see French inflation staying below 2%.”
—Maeva Cousin, economist. Click here for full REACT
Consumer-price rises accelerated slightly in Spain to 1.8%. Figures for the currency bloc later on Thursday are expected to show inflation quickened to 1.9% from 1.7%.
While the ECB’s objective is within sight, the fight hasn’t yet been won, according to President Christine Lagarde.
“I am not going to tell you that inflation is under control,” she said in an interview with Le Monde published Thursday. “We also know that inflation will rise in the coming months, simply because of base effects.”
Bloomberg Economics’ nowcast for the euro region estimates a reading of 2.1% for October, after incorporating the recent national-level data.
Growth data from the euro area that showed the economy expanded more strongly than expected in the third quarter — with even Germany avoiding a recession it was widely tipped to endure — may support arguments to maintain a gradual pace of easing and stick with traditional quarter-point reductions in borrowing costs.