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French economy hit by drop in consumer prices

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French economy hit by drop in consumer prices
Photo: AFP
11:16 CEST+02:00
France, Europe's second biggest economy, remains stuck in a deflationary spiral, provisional May figures released on Tuesday showed.

A day after Germany reported a return of inflation into positive territory, the Insee statistics agency said France's consumer prices fell slightly this month compared to a year earlier.

Inflation in the wider eurozone also remained in negative territory in May, separate data published Tuesday by the Eurostat statistics agency said.

French annual inflation slipped 0.1 percent in May, largely due to a sharp fall in prices for energy and a decrease in prices of manufactured products, it said in its provisional estimates.

Annual inflation has remained in the red since February, even if the year-on-year drop was slightly less than the April figure, when prices slid 0.2 percent, the Insee statistics agency said.

On a monthly basis, French consumer prices in May rose by 0.4 percent compared to the previous month.

This resulted from an upturn in prices for food, especially fresh produce, and in petroleum products, it said, while other goods and services prices remained sluggish.

Under the Harmonised Index of Consumer Prices, used for comparisons between European Union members, France's inflation in May grew by 0.3 percent from theprevious month, and was stable year on year.

"In the coming months, inflation should continue to rise thanks to energy prices but the lack of improvement in underlying price pressures should limit the magnitude of the pickup," HSBC analyst Chantana Sam said in a note to
investors.

On Monday, German data showed that rising prices for rents and services helped push inflation in Europe's top economy back into positive territory in May.

News that Germany had exited deflation -- the term used to describe falling prices -- was a welcome development for the European Central Bank, which targets inflation rates of close to but just below 2.0 percent, a level it sees as conducive to healthy economic growth.

The Frankfurt-based bank in March fired off a new volley of shots in its ongoing battle to avert deflation in the euro area and jumpstart economic recovery in the region.

The ECB's governing council, due to meet in Vienna Thursday, is not expected to announce any new stimulus measures as it continues to implement the range of measures announced in March.

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