France's May inflation rate fell to a four-year low. Is a rate cut by the European Central Bank expected in June?
France's inflation rate in May fell to a four-year low, rising only 0.6% year-on-year, lower than the market expectation of 0.9%. This data supports the view that the European Central Bank may further cut interest rates. The Governor of the Bank of France stated that the latest inflation data is a positive signal against inflation, and it is expected that the European Central Bank will lower the benchmark interest rate at the policy meeting on June 5. The market anticipates that there will be one more rate cut in the future, with the deposit facility rate expected to drop to 1.75%
According to Zhitong Finance APP, France's inflation rate has further dropped below the European Central Bank's target, reaching its lowest level in over four years, supporting the view that the European Central Bank may further cut interest rates. Data released on Tuesday showed that France's harmonized CPI in May rose only 0.6% year-on-year, the lowest level since December 2020, below market expectations of 0.9% and the previous value of 0.9%.
France's inflation rate in May saw only a slight increase, mainly influenced by an 8.1% year-on-year decline in energy costs and a 0.2% year-on-year decrease in manufactured goods prices. In the services sector, which is closely monitored as a potential indicator of price pressure, the inflation rate fell from 2.4% to 2.1%.
The weak inflation data from France reflects the backdrop of slowing economic growth in the Eurozone. Inflation data for several of the Eurozone's largest economies is expected to be below the European Central Bank's 2% target for May. Inflation data for Italy, Germany, and Spain will be released on Friday, while the Eurozone's inflation data for May will be published next week.
The continued decline in Eurozone inflation may encourage policymakers to further cut interest rates in response to the uncertainty brought about by U.S. President Trump's tariff threats. François Villeroy de Galhau, Governor of the Bank of France and member of the European Central Bank's Governing Council, stated on Tuesday that the latest inflation data from France is "another very encouraging sign against inflation," and "therefore, the normalization of monetary policy is certainly not yet complete, and we may see this at next week's policy meeting under certain conditions."
The market currently expects the European Central Bank to lower the benchmark interest rate at its policy meeting on June 5. Additionally, the market anticipates that the European Central Bank will have one more rate cut after June, at which point the deposit facility rate will bottom out at 1.75%.
Gediminas Simkus, a member of the European Central Bank's Governing Council, stated on Monday that the risks of Eurozone inflation falling below the 2% target are increasing. He noted that due to trade frictions with the United States and the strengthening of the euro, the risk balance for consumer prices is skewed to the downside. Simkus also mentioned that borrowing costs are currently at the upper end of the neutral interest rate range. He believes there is "room for a rate cut" at the next policy meeting in June, and "the risk of future inflation rates falling below the target has increased."
