France’s core inflation rate likely to remain very low

France's headline HICP inflation rate held above zero in September, today's data revealed that price pressures remain exceptionally weak and will add to the growing pressure on the ECB to increase its policy support.

Annual HICP inflation was unchanged at +0.1% in September, in line with the consensus forecast. The national measure also held steady, at 0.0%.

Looking ahead, the drag from the energy component is likely to ease unless oil prices fall substantially further, which is not expected.

"The core rate is likely to remain very low. Producer price inflation fell further below zero in August and survey evidence points to a renewed decline in manufacturers' selling prices. Meanwhile, we doubt that services inflation will accelerate sharply given that the rising level of unemployment will keep wage pressures subdued", stated Capital Economics in a research note.

In the short term, the continued low level of inflation may well benefit the French economy as it will support households' purchasing power and thereby provide an additional boost to consumer spending. But in the longer term, inflation close to zero will make it harder for the French government to meet its fiscal targets, which are expressed as a share of nominal GDP, added Capital Economics.