French Inflation Comes in Hotter Than Expected in February

It was a busy start to the European session. The French economy was in the spotlight, with French inflation, Q4 GDP, and consumer spending figures in focus.

In Q4, the French economy expanded by 0.1% according to finalized numbers, unchanged from the first estimate and growth in Q3.

Significantly, inflationary pressures picked up in February, with the French annual inflation rate rising from 6.0% to 6.2% versus a forecasted 6.1%

According to Insee.fr,

• An acceleration in prices for food and services pushed inflation higher in February.
• Energy price pressures softened while the manufacturing inflation rate held steady.
• Consumer prices increased by 0.9% in February following a 0.4% rise in January.
• Energy prices increased at a slower pace, while there was a pickup in prices for manufactured goods and services.

However, consumer spending increased by 1.5% in January, reversing a 1.6% slide from December. The latest French inflation and consumer spending support a 50-basis point rate hike in March. However, the ECB will unlikely consider the latest numbers in April.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Consumer confidence would need to improve to support the ECB’s outlook on consumption.

After the latest US inflation numbers and shift in sentiment toward Fed monetary policy, investors need to monitor ECB member speeches. However, with no ECB Executive Board members on the calendar to speak today, investors should track ECB Executive Board member commentary with the media.

EUR/USD Price Reaction to French Inflation and Spending

Ahead of today’s stats, the EUR/USD rose to an early high of $1.06149 before falling to a low of $1.05818.

However, in response to the numbers from France, the EUR/USD rose to a post-stat high of $1.05969 before easing back.

At the time of writing, the EUR/USD was down 0.16% to $1.05928.

Up Next

It is a busier day on the US economic calendar. Goods trade data for January will draw interest early in the session. However, barring a marked widening in the goods trade deficit, the numbers should have a muted impact on the dollar.

The US CB Consumer Confidence numbers for February will influence. A larger-than-expected rise in confidence would support the more aggressive Fed monetary policy outlook. Economists forecast the Index to increase from 107.1 to 108.5.

Other stats include house price data. However, the latest jump in US mortgage rates will mute investor sentiment towards a likely slowdown in house price growth in December.

Following the latest Core PCE Price Index numbers, investors should also monitor FOMC member chatter.