France Inflation Accelerates To 6.0%

(RTTNews) - Inflationary pressures in the French economy continued unabated at the start of the year as consumer price inflation and the EU harmonized rate accelerated in January and producer price growth remained strong, even as the economy narrowly escaped a recession in the fourth quarter, thus validating the tightening stance of the European Central Bank that is set to hike rates further this week.

The consumer price index rose 6.0 percent year-on-year following a 5.9 percent rise in December, preliminary figures from the statistical office INSEE showed Tuesday. Economists had expected 6.1 percent inflation.

The harmonized index of consumer prices, or HICP, climbed 7.0 percent annually in January following a 6.7 percent increase in December. That was in line with economists' expectations. This slight increase in inflation should result from an acceleration in food prices and energy prices, INSEE said. Another report from INSEE showed that the domestic producer prices rose 20.7 percent year-on-year in December after a 20.9 percent increase in November.

Electricity bills are set to rise by 15 percent in February due to a revision of tariff shield, driving energy inflation higher. In 2022, the increase was 4 percent. Wages are also set to increase further.

While government measures on energy prices brought down inflation in France by 3 percentage points in 2022, French households and companies are finally facing higher energy bills, well after their European neighbours, ING economist Charlotte de Montpellier said.

Earlier on Tuesday, INSEE data showed that the French economy grew 0.1 percent quarter-on-quarter following a 0.2 percent increase in the third quarter. The International Monetary Fund on Tuesday retained France's growth forecast for this year at 0.7 percent, and raised the estimate for 2022 to 2.6 percent from 2.5 percent. The lender projected 1.6 percent for next year.

Read more: France Business Confidence Improves On Hopes Of Brief Economic Slowdown

In the backdrop of a better economic situation, producers are set to pass on the rise in costs to consumers, thus driving inflation higher. Core inflation is set to climb further in the coming months due to the upcoming annual price reviews in several sectors, mainly transport.

"The ECB will probably want to see clear signs of a permanent decline in core inflation before it softens its tone and stops raising rates," de Montpellier said.

The central bank is widely expected to raise interest rates by 50 basis points this Thursday, and deliver another similar size hike in March.

Separate data released by INSEE showed that household consumption of good decreased 1.3 percent month-on-month in December after a 0.6 percent rise in November. On a month-on-month basis, the CPI increased 0.4 percent after a 0.1 percent fall in the previous month. Economists were looking for a 0.5 percent increase.

Compared to the previous month, the EU measure of inflation, HICP, rose 0.4 percent in January, after a 0.1 percent fall in December. In the monthly comparison, the energy prices rebounded due to the increase in petroleum product prices, partly due to the end of fuel rebates, and in regulated gas prices. Food prices of food accelerated, while those of services were stable. The prices of manufactured goods fell back in link with the winter sales, the statistical office said.

INSEE is set to release final figures for January CPI on February 17. Home market producer prices rose 1.4 month-on-month after a 0.7 percent rise in November, due to the prices of mining and quarrying products, energy and water.

Industrial producer prices excluding energy rose 9.4 percent annually in December, slowing from 11.9 percent in November. Producer prices dropped 0.1 percent from the previous month.

Import price inflation slowed to 8.6 percent from 11.9 percent in December. Import prices of industrial products dropped further by 1.2 percent monthly after a 0.4 percent fall in the previous month, due to the marked drop in the prices of coke and refined petroleum products.