Inflation in France has fallen well below the ECB's target: interest rate cuts are expected

Inflation in France has fallen below the European Central Bank's 2% target, hitting a more than four-year low, Bloomberg reports.

It is noted that this became an additional signal that the cost of borrowing could be reduced even further.

Bank of France Governor Francois Villeroy de Gallo, in a speech in Paris, called the latest inflation data "a very encouraging sign of disinflation in action."

He added that the normalization of monetary policy is not yet complete, and hinted that the ECB Governing Council may make a new decision to cut rates at its next meeting.

The European Central Bank is expected to cut its deposit rate to 2% on June 5.

The head of the central bank of Lithuania, Gediminas Šimkus, also advocated easing monetary policy, noting that there is a growing risk of not reaching the inflation target.

Consumer prices in France rose 0.6% year-on-year, the weakest pace since December 2020. Analysts had expected prices to rise 0.9%, the same as in April.

The slowdown was driven by an 8.1% drop in energy prices and a 0.2% drop in the cost of manufactured goods. In the services sector, which is often considered an indicator of core inflation, price growth also slowed, from 2.4% to 2.1%.

Analysts note that a trend towards lower inflation is also observed in other major eurozone countries – Italy, Germany, and Spain.

The region's largest economies are expected to report May growth below the ECB's target for the first time in eight months.

• On April 22, it was reported that Europe had almost returned inflation to normal levels. The ECB predicted 2% in the coming months.
• On May 19, it became known that the European Commission forecasts real GDP growth for 2025 of 1.1% in the EU and 0.9% in the eurozone – practically at the same level as in 2024.