French Annual Inflation Rate Accelerates to 1.6%

Oct 12, 2007 - French annual inflation accelerated in September, spurred by energy costs and tobacco prices.

Consumer prices rose 1.6 percent from a year earlier, higher than the 1.3 percent of the previous month, based on European Union-harmonized methods, Insee, the national statistics bureau, reported today in Paris. From a month earlier, prices rose 0.1 percent. Both figures were below the median expectations of analysts surveyed by Bloomberg News.

Signs of discord are beginning to emerge among European Central Bank monetary-policy makers on the course of interest rates. The ECB's Axel Weber yesterday said the bank may need to raise the key rate to a level that restricts growth in order to control inflation. His colleagues Vitor Constancio and Klaus Liebscher have noted that the stronger euro is helping to contain prices.

"The inflation numbers were very good," said Alexandre Bourgeois, an economist at Natixis in Paris. "Inflation is under control." The ECB aims to keep inflation below 2 percent.

Energy prices increased 1.9 percent in September from a year earlier, while the cost of tobacco rose 6.2 percent, boosted by higher taxes. On the month, fresh food prices jumped 3.2 percent and tobacco rose 1 percent.

The ECB stepped back from plans to raise rates in September, saying it wanted to assess the economic impact of rising credit costs and financial-market turbulence caused by the U.S. housing slump.

"The impact of the financial crisis in the fourth quarter and the first quarter of 2008 should prompt the ECB to reconsider its scenario and progressively consider a monetary response, with two rates cuts in the first half," said David Naude, economist at Deutsche Bank in Paris.