French inflation slowed slightly, reinforcing the European Central Bank’s decision to start cutting record interest rates and offers a positive point in economic terms for President Emmanuel Macron two days before the legislative elections.
Consumer prices in the euro zone’s second-largest economy rose 2.5% in June from a year earlier, after advancing 2.6% the previous month, the statistics agency Insee reported on Friday. The figure was in line with the median estimate of economists in a Bloomberg survey.
A separate publication showed that inflation is also declining in Spain. Price gains moderated from 3.8% to 3.5%, also in line with expectations, although a gauge of underlying pressures held steady. In Italy, inflation rose but remained below 1%.
While the ECB cut borrowing costs this month, most officials are reluctant to do so to chart a path for monetary policy amid growing uncertainty about everything from wage growth to geopolitics.
Markets are betting on one or two more cuts in 2024, a view supported by some members of the ECB Governing Council. In addition to Friday’s data, investors will be able to evaluate inflation figures for Germany on Monday and for the euro zone as a whole on Tuesday.
An ECB survey, also published on Friday, offered hope that the price decline could persist, with a decline in inflation expectations among eurozone consumers both over the next 12 months and over the next three years.
Bond yields began to rise in the morning, with France underperforming ahead of the first round of voting this weekend in parliamentary elections. The 10-year bond yield spread with Germany widened another three basis points to 85 basis points, the highest level since 2012. The Italian equivalent rate also rose slightly to its widest level since February.
In France, inflation slowed as food and energy price increases eased. According to a national price index, inflation fell even more than the harmonized reading, reaching 2.1% in June.
The cost of living is a major issue in the snap elections that begin on Sunday. Polls show that purchasing power and prices are the main concerns, and major parties have proposed measures including lower sales taxes and a higher minimum wage.
The vote is clouding the near-term outlook as concerns over policy changes will lead investors to dump French assets and raise borrowing costs. Consumer confidence is also worsening, according to a monthly survey published this week, while there has been a notable rise in inflation expectations and a decline in the outlook for living standards.
However, in better news for the current government, an independent report from Insee showed that consumer spending rose 1.5% in May., as households spent more on food and energy. Economists had forecast a month-on-month increase of 0.2%.
