20000311

French inflation rate eases in February

PARIS: French consumer prices rose a weaker-than-expected 0.1 percent in February, trimming the annual inflation rate to 1.4 percent from 1.6 percent, as energy price rises slowed and seasonal sales cut price pressures.

Economist said a late start to January sales this year had allowed discounts to continue into February, producing a 2.2 percent month-on-month fall in clothes and shoes prices, which alone cut 0.1 of a point off the overall index.

Meanwhile energy prices, which have surged on the back of higher oil prices, registered weaker gains. They rose 0.8 percent in February after a 1.1 percent month-on-month rise in January and a 3.2 percent rise in December.

Economists said the French inflation numbers were favourable for the interest rate outlook, saying that while the European Central Bank was expected to increase the cost of borrowing, the pressure to continue rate hikes would wane later in the year.

"We saw the inflation peak in January at 1.6 percent - it is going to decelerate gradually to around one percent at the end of 2000," said Philippe Brossard, economist at ABN Amro.

Economists polled by Reuters had predicted a 0.2 percent month-on-month increase in prices and an annual inflation rate of 1.5 percent.

Brossard said that excluding energy, the consumer price index was up 0.4 percent year-on-year, showing that rising oil prices accounted for one percentage point of the annual inflation rate.

The government broke with tradition this year and started traditional sales on January 15, rather than at the start of the month, and the discounting period continued further into February than usual.

"The fact that winter sales extended from mid-January through February this year helped to keep inflation at bay," said Emmanuel Ferry, economist at Exane.

Even though overall manufactured goods prices remained under control - they fell 0.7 percent from February a year earlier - French economic growth is expected to accelerate this year.

Economists polled by Reuters expect the economy to grow at around 3.4 percent this year after 2.7 percent in 1999.-Reuters