French inflation drops to 1.8% in June as Middle East peace deal cools oil prices

Sharp deceleration breaks four-month rise

French consumer prices increased 1.8% year-on-year in June, down markedly from 2.4% in May, according to provisional figures released by the national statistics office INSEE on Tuesday. The drop ends four consecutive months of accelerating inflation that had been fuelled by the Middle East conflict and surging oil prices linked to the Strait of Hormuz blockade. It marks the first time headline inflation has slipped below the 2% threshold since March, when it stood at 1.7%.

INSEE’s preliminary estimate, due for confirmation in mid-July, shows consumer prices actually fell by 0.2% on the month, reversing a 0.1% uptick in May. The harmonised index of consumer prices (HICP), used for euro-area comparisons, climbed 2.0% year-on-year compared with 2.8% the previous month, and dipped 0.3% month-on-month.

Energy prices the main driver

INSEE attributed the slowdown to a sharp retreat in energy costs, particularly petroleum products, after a Middle East peace protocol was announced on 17 June. Energy prices still rose 11.2% on the year, but that was a steep deceleration from the 16.6% recorded in May.

Food and services costs moderate

Food price inflation eased slightly to 0.9% year-on-year from 1.1% in May, helped by a cooling in fresh produce costs (2.8% after 3.4%). Services prices, which account for more than half of the consumer basket, decelerated from 2.4% to 1.8%. Tobacco inflation remained nearly stable at 3.3%, just above the 3.2% seen in May.

Manufactured goods and sales effect

Prices of manufactured goods declined, with INSEE noting that the drop was more pronounced than in previous periods. The institute pointed to summer sales, which this year run over a longer window, as an additional factor pulling the index lower.