French inflation rises to 2.1% in July as energy costs surge, eurozone hits 2.9%

French inflation picks up

French consumer prices rose 2.1% year-on-year in July, according to provisional data from the national statistics institute INSEE published on Friday 31 July. The increase follows a reading of 1.8% in June and a sharp deceleration from 2.4% in May, when the summer sales temporarily depressed manufactured goods prices. The harmonised index of consumer prices (HICP), which allows comparison across eurozone members, climbed to 2.4% in July from 2.0% in June. The figures matched market expectations: a Reuters poll of 17 analysts had forecast a 2.1% year-on-year rise for the national measure, with individual estimates ranging from 1.8% to 2.3%.

Energy and food drive prices

Energy costs were the main upward force, jumping 12.4% year-on-year in July. INSEE attributed the surge to the conflict in the Middle East, which has pushed up gas and petroleum product prices following the collapse of the ceasefire between the United States and Iran. Accommodation and communication services also contributed to the rise. The decline in manufactured goods prices eased compared with June, when the start of the summer sales had produced a sharper fall. Food prices continued to increase at the same pace as the previous month, up 0.9% year-on-year. Within that category, fresh products accelerated markedly, rising 3.8% after a 2.7% increase in June.

Eurozone picture

Across the 20-nation currency bloc, inflation edged up to 2.9% in July from 2.8% in June, according to Eurostat's flash estimate released the same day. The reading was in line with the expectations of economists surveyed by Bloomberg. Energy prices across the eurozone rose 10% over the month, up from 8.5% in June, as the failed US-Iran ceasefire drove up prices at the pump. Services inflation ticked up 0.1 percentage point to 3.3%, while non-energy industrial goods prices rose 0.2 points to 0.9%. Food inflation was the only major component to decelerate, falling 0.3 points to 1.2%. Core inflation, which excludes volatile items such as energy and food, edged up 0.1 point to 2.5%.

The lowest HICP rates were recorded in Estonia (2.0%), Malta (2.1%) and France (2.4%). At the opposite end, Lithuania posted 5.6%, Bulgaria 4.1% and Cyprus 4.0%. The French reading of 2.4% on the harmonised measure places it among the three lowest in the currency union, while Lithuania's 5.6% rate was more than double the eurozone average.

ECB policy dilemma

The inflation data will intensify the debate inside the European Central Bank, which is balancing its mandate to ensure price stability against the risk of stifling the eurozone's fragile recovery. The ECB left its key interest rates unchanged at its meeting last week, after having raised them in June for the first time since 2023. Several governing council members, however, argued for another increase, and the July inflation print is likely to fuel speculation among economists about a further tightening step when the council next meets in September.

Government response

The French economy ministry described the July uptick as contained and pointed to the broader economic context.

This rise in inflation remains contained, following on from the June figures and against a backdrop of growth reaching +0.2% in the second quarter. We remain mobilized and continue our efforts to protect the purchasing power of the French.

INSEE will publish the definitive inflation figure for July on 14 August.