France’s preliminary Consumer Price Index (CPI) for February rose by 0.8%, below the anticipated 1.0% year-on-year. This data was released by INSEE on 28 February 2025, with the previous CPI reading at 1.7%.

The Harmonised Index of Consumer Prices (HICP) showed an increase of 0.9%, compared to the expected 1.2%, and a decline from 1.8% in the previous month. The slowdown in price growth has been largely influenced by adjustments in energy prices, particularly the substantial rise in electricity costs in February 2024.

Additionally, inflation in the service sector reduced from 2.5% in January to 2.1% in February.

The latest figures indicate that inflationary pressures in France have eased more than expected, with both the standard CPI and the HICP showing a slower rate of growth. A key factor in this softer inflation reading is the movement in energy costs, which previously fuelled rising prices. While electricity costs increased substantially a year ago, broader price pressures appear to have lost momentum. A notable slowdown in service sector inflation further supports this observation, reflecting reduced price hikes in areas such as transport and hospitality.

For those closely monitoring price trends, this softer inflation print raises questions about future monetary policy moves. A weaker rise in consumer prices may strengthen the case for adjustments in interest rates, particularly if further data points in the same direction. With inflation trending lower, policymakers might weigh the risk of tightening financial conditions too much.

Market expectations will likely shift in response, particularly for derivatives linked to inflation or interest rates. Lower-than-expected inflation figures can impact bond yields, while traders positioned for higher price growth may need to reassess their stance. If service sector inflation continues to slow, it could further influence forward-looking pricing models.

Beyond headline inflation, sector-specific developments should not be overlooked. The decline in service price growth suggests changing consumer demand dynamics, while energy prices remain a key variable. Labour costs and wage growth trends will be essential to watch, as persistent wage increases could alter inflation expectations going forward.

Further data releases in the coming weeks will either reinforce or challenge this trend. If subsequent figures confirm the same direction, adjustments in expectations across financial markets may become more pronounced. Conversely, any unexpected increases may lead to sharper market reactions, requiring swift recalibration.