French inflation holds at record, defying European slowdown

Prices are key metric for ECB ahead of December rates decision

French inflation unexpectedly remained at a record high in November, defying a slowdown in other parts of the euro zone and weakening calls for the European Central Bank to slow the pace of interest rate increases.

Consumer prices in the currency bloc’s second-largest economy rose 7.1 per cent from a year earlier, matching October’s increase, statistics office Insee said on Wednesday. Analysts surveyed by Bloomberg had estimated a 7 per cent rise.

European bonds extended a drop after the data, with 10-year German yields rising as much as 6 basis points to 1.98 per cent before paring the move.

Separately, inflation in the Netherlands decelerated for a second month as advances in energy costs eased. Harmonised consumer prices rose 11.2 per cent from a year earlier in November, compared with 16.8 per cent in October, a preliminary estimate from the statistics office there showed.


That will provide ECB policymakers with their last update on prices before they must decide on December 15th how steeply to lift borrowing costs to help wrest record price gains back toward the 2 per cent target.

Officials have opted for back-to-back hikes of 75 basis points at the last two meetings. The question now is whether they’ll slow that momentum to a half point, especially as the Continent teeters on the brink of a recession.

There’s certainly no consensus on doing so. ECB President Christine Lagarde said Monday that she’d be “surprised” if inflation has peaked, while Executive Board member Isabel Schnabel said recently that it may be too early to slow down.

The strength of core inflation – a measure that strips out energy and food prices – may also give hawkish policymakers an argument to stick to big increments when raising rates. Economists expect that reading to be stable at 5 per cent in November, even as the headline number dips.

France’s report showed an acceleration in price gains for food and manufactured goods, while energy costs for households softened, even as the government reduced a discount on diesel and gasoline. The price of services rose 3 per cent on the year – slightly less than the 3.1 per cent seen in October.

A separate release from Insee showed that rising prices are hurting consumers, who cut back on outlays for energy, manufactured goods and food in October. Overall, household spending fell 2.8 per cent – the sharpest month-on-month decline since April 2021. Analysts surveyed by Bloomberg had expected a 1 per cent decline. – Bloomberg