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French deflation fears rise as prices fall

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French deflation fears rise as prices fall
Deflation fears have been heightened in France, after the release of new figures. Photo: Pascal Terjan/Flickr
09:39 CEST+02:00
French fears over deflation were heightened on Wednesday when new data was released showing prices had fallen steeply.

French prices dropped sharply in July compared to the previous month, official data published on Wednesday showed, adding to fears of deflation in France and the wider eurozone.

Prices fell by 0.3 percent month-on-month in July, the INSEE national statistics office said in a statement.

But on a year-on-year basis, prices rose by 0.5 percent, the same as the previous month.

INSEE said the dip in prices could be partly put down to summer sales.

Earlier this month, French Prime Minister Manuel Valls said there was a real risk of deflation in the eurozone, sparked by sluggish growth.

He criticised the eurozone's economic policies for being ineffective, before President François Hollande called on Germany to do more to boost growth.

Economists fear deflation, as it encourages consumers to put off purchases in the hope that prices will fall further. This can create a downward spiral of low growth and continuing deflation.

Such concerns persuaded the European Central Bank to cut interest rates in June and unveil other measures to ease monetary conditions in the single currency area.

Data published earlier Wednesday by European powerhouse Germany showed inflation at its lowest level for four years.

France is struggling economically and politicians are bracing for the publication of second-quarter growth data on Thursday that is expected to show the eurozone's second-largest economy has ground to a halt.

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