French inflation fell to its lowest level in nearly three years in May, driven by a significant drop in energy prices and a slowdown in service costs. According to preliminary data from the National Institute of Statistics and Economic Studies (INSEE), the harmonized consumer price index, adjusted for comparison with other eurozone countries, increased by just 0.6% year-on-year in May, down from a 0.9% rise in April. This marks the lowest inflation rate in France this year and the lowest since December 2020.
Energy and Service Prices Lead the Decline
Energy prices were a key contributor to the inflation drop, falling 8.1% compared to May 2024, a steeper decline than the 7.8% drop in April. This marked the fourth consecutive month of falling energy prices, with gas prices continuing to drop. Service prices also showed signs of slowing, rising 2.1% year-on-year in May, down from 2.4% in April. INSEE attributed this slowdown to slower growth in transport prices and a significant decline in communication costs.
Food Prices and Manufactured Goods
Food prices rose by 1.3% in May, slightly higher than the 1.2% increase in April, while prices of manufactured goods remained negative at -0.2%, unchanged from the previous month. Tobacco prices held steady with an inflation rate of 4.1%. The overall decline in inflation signals a continued moderation of price growth across various sectors, reflecting the impact of lower energy prices and slower service costs.
Encouraging Signs of Disinflation
The data provides a hopeful outlook for France’s economy, with signs of disinflation continuing to take hold. Francois Villeroy de Galhau, a European Central Bank policymaker and the head of the Bank of France, described the latest data as a positive indicator of ongoing disinflation. Villeroy previously suggested that the European Central Bank (ECB) may consider another interest rate cut before the summer, further supporting the case for an economic recovery in the region.
Outlook and Economic Impact
With inflation showing signs of easing, France may see a further reduction in cost pressures over the coming months. However, inflation in food prices and certain services remains a concern for households, even as energy prices continue to decline. The government’s ability to manage these factors, alongside the ECB’s monetary policy actions, will play a key role in sustaining this disinflationary trend moving forward.
