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(Bloomberg) — French inflation unexpectedly quickened this month, supporting the case for another European Central Bank interest-rate increase.
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Consumer-price growth in the euro area’s second-largest economy jumped to 2.4% in July, statistics agency Insee said on Friday. That’s stronger than predicted by any economist in a Bloomberg survey, which showed the level remaining steady at 2%.
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The data are part of a raft of releases from the region’s major economies before the currency bloc itself publishes numbers later on Friday. Analysts see an uptick to 2.9% from 2.8% after the conflict in the Middle East flared up again this month. Spanish and German figures already came in higher.
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In France, the closely watched gauge for services inflation increased 2.3% in July, compared with 1.9% in June. Energy accelerated to 12.4%.
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What Bloomberg Economics Says…
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“France’s inflation increased more than expected in July as the renewed escalation of the Middle East conflict pushed up pump prices while heat waves likely supported accommodation prices. Underlying price pressures stay modest, however, consistent with recent cyclical surveys.”
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—Jean Dalbard, economist. For full React, click here
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Together with better-than-predicted economic output numbers on Thursday, that puts ECB policymakers on track for another rate hike in September. Economists predict a 25 basis-point move, and markets agree, seeing a 90% likelihood of an increase at the next meeting.
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Still, a new round of inflation readings due before then could yet derail such assumptions.
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Beyond elevated prices, French officials are concerned over public finances, with Budget Minister David Amiel joining Finance Minister Roland Lescure’s warnings from earlier this week.
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“France is sitting on a powder keg when it comes to its public debt,” Amiel told Sud Radio on Friday. “If nothing is done, the French deficit would rise from 5.1% of gross domestic product — its level in 2025 — to nearly 6% in 2027, and to nearly 7% in 2030. That would be a veritable explosion of the deficit.”
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—With assistance from James Hirai, Phil Serafino, Giovanna Coi, Joel Rinneby and Harumi Ichikura.
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(Updates with market pricing in fifth, fiscal worries starting in seventh paragraph)
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English (US)