France's Consumer Price Index (CPI) rose 2.4% year-on-year in May, coming in just below the 2.5% forecast, while the prior reading stood at 2.2%. The Harmonised Index of Consumer Prices (HICP) came in at 2.8% year-on-year, also slightly under the 2.9% expected, up from 2.5% the previous month.
On a monthly basis, French headline inflation edged up 0.1% in May compared to April. That reflects some moderation in energy prices over the past month, though the annual rate remains substantially higher than it was a year ago.
The headline annual inflation rate is now the highest since February 2024, marking a notable acceleration in price pressures.
Looking at the breakdown, food prices held steady at 1.2% year-on-year, while services inflation ticked slightly higher to 2.0%, up from 1.8% previously. Services inflation continues to be a key sticking point, and with higher energy prices expected to filter through to other categories, there is a risk of a stronger uptick in the months ahead.
To put the energy component in perspective, energy prices were running at -8.0% year-on-year in May of last year. This year, that figure has swung sharply to +16.8% year-on-year — a dramatic shift over just twelve months.
The broader concern for the French economy is that economic growth appears set to soften further in the second quarter, even as price pressures are likely to intensify heading into the summer. Rising stagflation worries pose a considerable challenge to the European Central Bank's plans for managing monetary policy throughout the remainder of the year.
Why it matters
Energy prices swung from -8.0% to +16.8% year-on-year in just twelve months — a sharp reversal that is the primary driver of the acceleration in headline inflation.
Services inflation, which generally reflects wages and domestic demand, has also edged higher, suggesting price pressures are broadening beyond energy alone.
The combination of softening growth and rising inflation raises stagflation concerns that complicate the ECB's plans for managing monetary policy for the rest of the year.
