France Inflation Softens To 13-Month Low, Q1 GDP Recovers As Estimated

(RTTNews) - The French consumer price inflation moderated more than expected to hit a 13-month low in May on food and energy prices, data released by the statistical office INSEE revealed Wednesday.

The statistical office also confirmed that the second-largest economy recovered as previously estimated in the first quarter despite the weak domestic demand.

However, slowing inflation and weak household consumption suggested that the rebound is unlikely to last long.

Consumer prices grew 5.1 percent from a year ago, following a 5.9 percent rise in April, the provisional estimate showed.

The May CPI inflation rate was the lowest since April 2022, when prices advanced 4.8 percent. Moreover, the figure was well below economists' forecast of 5.7 percent.

Data revealed that the deceleration resulted from a slowdown in prices of energy, food, manufactured goods and services.

On a monthly basis, consumer prices dropped 0.1 percent, in contrast to April's 0.6 percent increase. Economists had forecast prices to grow 0.3 percent.

The harmonized index of consumer prices also logged a slower annual growth of 6.0 percent in May after increasing 6.9 percent in April. Economists had forecast inflation to slow to 6.4 percent.

Month-on-month, the HICP slid 0.1 percent, reversing a 0.7 percent rise in the previous month, while the index was expected to rise 0.3 percent. Final inflation data is due on June 15.

The larger-than-expected fall in headline inflation in France and the fall in both services and core goods inflation bode well for Eurozone HICP inflation to be published tomorrow, and will strengthen the hand of the doves at the European Central Bank who argue that the tightening cycle is now nearly over, Capital Economics' economist Andrew Kenningham said.

The European Central Bank had raised its benchmark rates by a quarter-point early this month and ECB President Christine Lagarde has signaled more rate hikes ahead. Nonetheless, the bank slowed the pace of policy tightening from a half-a-point hike in March.

A separate release from INSEE on Wednesday showed that domestic producer price inflation softened to 7.0 percent in April from 12.8 percent in March.

Compared to the previous month, producer prices in the domestic market fell 5.1 percent, reversing March's 1.9 percent increase.

As initially estimated, gross domestic product grew 0.2 percent sequentially after stagnating in the preceding quarter, the Insee reported.

On the expenditure-side of GDP, household spending gained only 0.1 percent. The 2.7 percent fall in food consumption was offset by the 5.7 percent increase in energy consumption. At the same time, government spending declined 0.4 percent.

Gross fixed capital formation slid 0.8 percent due to the decrease in construction investment.

Imports shrunk 2.8 percent, while exports logged a moderate drop of 0.2 percent. As a result, the foreign trade contributed 1.0 point to GDP growth.

Finally, the contribution of inventory changes to GDP growth was negative in the first quarter.

In April, household spending diminished 1.0 percent from March, when the volume was down 0.8 percent, the statistical office said in a separate report. The fall was explained by the downturn on energy consumption and the further decrease in food spending.

Although France escaped recession last winter, data today suggested that a recession in the coming months cannot be ruled out, ING economist Charlotte de Montpellier said.