French Inflation Cools to Four-Year Low as ECB Prepares to Cut Rates Again — 4th Update

By Joshua Kirby and Ed Frankl

The European Central Bank looks primed to cut its key interest rate next week, after French inflation fell to its lowest level in four years, and price increases held steady in Germany, Italy and Spain.

Consumer prices in France rose 0.9% on year this month, falling sharply from 1.8% in January, according to EU-harmonized figures published Friday by France's statistics authority. That was considerably lower than the 1.5% rate economists had estimated in a poll compiled by The Wall Street Journal.

Falling energy prices made up much of the drop, but prices of services also lost pace.

The latest data shows inflation is at its lowest level since February 2021, before a series of supply shocks drove it higher across Europe and much of the globe.

It also marks the first time since September that annual inflation has fallen in France, and means the rate has remained below the ECB's 2% target for a full half-year.

A fall in regulated electricity prices is largely to thank for France's cooler inflation this month, economists Stephane Colliac and Guillaume Derrien at bank BNP Paribas wrote in a note. But the underlying trend point to feebler rises across the board, they said.

"Disinflation is becoming increasingly widespread," Colliac and Derrien said.

For the wider 20-member eurozone, inflation is trending above target. But signs of cooler price rises in France, alongside stable inflation in Germany, Italy and Spain, are likely to steel ECB rate setters' determination to lower the bank's key rate for a sixth time since last summer when the governing council meets in Frankfurt next week.

German inflation held at 2.8%, still above the ECB's target. However, services prices are slowing and a downward trend is expected to continue, as cost pressures from wages are easing, according to Stephanie Schoenwald, an economist at KfW Research.

In addition, eurozone consumers in January expected inflation to be lower over the coming 12 months than they did in December, according to a survey also released Friday by the ECB.

Cooler consumer prices in much of the eurozone have been coupled with a lack of momentum in the currency area's collective economy. The French and German economies both contracted at the end of last year, and the wider eurozone saw only anemic growth. Lower interest rates have offered some succor to European businesses, but confidence in the private sector remains below the long-term average, surveys this week showed.

That glum mood comes amid the looming threat of high tariffs on European goods exported to the U.S. and a likely retaliation in kind on American goods sold in Europe.

President Trump said this week that he would enforce a 25% tariff on "cars and all the things" that Europe makes and sells to the U.S, though he didn't set out a timetable. That follows his plan outlined earlier this month to add a steep tax on European steel and aluminum imports.

A trade battle could drive up inflation in Europe, some ECB policymakers warn, though others have said the main effect will be to put the brakes on the continent's economic recovery.

Write to Joshua Kirby at joshua.kirby@wsj.com and Ed Frankl at edward.frankl@wsj.com