(Bloomberg) — French inflation eased more than expected in January to reach its lowest level since before Russia invaded Ukraine — the latest sign that the euro area’s efforts to tame surging prices are nearing an end.
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The reading for the currency bloc’s second-largest economy came in at 3.4% from a year ago, slowing from 4.1% in December. That’s less than the 3.6% median estimate in a Bloomberg survey, and well below the 7.3% peak notched in February 2023.
The moderation in inflation to a two-year low was driven by slowdowns in the costs of energy, food and manufactured products, according to statistics agency Insee.
German data later Wednesday and euro-zone numbers Thursday are set to show a similar trend — one that’s encouraged investors to bet that the European Central Bank will begin trimming interest rates in April.
European bonds extended gains and the euro fell after the French data. The 10-year yield on German debt dropped as much as seven basis points to 2.20%, while the euro slid 0.4% to the day’s low at $1.0807.
Policymakers have generally been more cautious on easing, with President Christine Lagarde signaling summer is a more likely starting point. Bank of France Governor Francois Villeroy de Galhau said at the weekend, though, that officials will continue to be guided by incoming data and no date is excluded for a first cut.
In deciding when to move, a key factor will be gauges of underlying inflation, which strips out volatile elements such as food and energy.
While France’s preliminary figures don’t provide such a measure, they showed services costs accelerated slightly in January.
–With assistance from Ainhoa Goyeneche and Aline Oyamada.
(Updates with markets in fifth paragraph.)
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