Inflation in France has accelerated to its highest level in more than two years

Inflation in France, the eurozone’s second-largest economy, accelerated in September to its highest level in more than two years, according to Bloomberg. Preliminary data was released by the French National Institute of Statistics and Economic Studies (INSEE). According to the data, France’s consumer price index (CPI) rose to 3.4% this month from 2.6% in August, exceeding economists’ forecasts, Bloomberg reports.

Against this backdrop, French bonds gave up some of their gains on Wednesday. Rising inflation has increased pressure on the European Central Bank (ECB), which has already raised rates twice this year. Traders are pricing in a third rate hike in the eurozone by the end of the year, as well as about three more hikes next year, according to Bloomberg.

Preliminary data on the Consumer Price Index (CPI) in France showed that the energy sector continues to be the main driver of price growth in the country: in September, energy prices rose 21.2% year-over-year.

“The resurgence of inflation in France is gaining momentum, driven primarily by rising prices for fuel at gas stations and natural gas,” economist Jean Dalbar commented on the situation. According to him, some of this pressure is also spilling over into the services sector—particularly transportation; food prices have risen slightly due to recent waves of extreme heat. “However, core price pressures remain weak, as France’s economic growth is currently well below its potential,” the expert noted. Amid accelerating inflation, French bonds have seen their price gains slow, and their risk metric has reached a new psychological threshold, Bloomberg reports.

The spread between yields on 10-year French bonds and their more reliable German counterparts widened by one basis point to 120 points, the highest level since 2012. “This spread level is a wake-up call for the market,” Marie Jacot, CEO of Edmond de Rothschild Asset Management France, said on Bloomberg TV.

Investors are bracing for political upheaval ahead of the 2027 presidential election and the possible rise to power of a government that would relax fiscal discipline, Bloomberg notes. The market’s attention is also focused on France’s fiscal risks, Bloomberg adds. On Tuesday evening, the French Public Debt Agency (Agence France Trésor) announced plans to issue a record €340 billion ($386 billion) in medium- and long-term securities next year. The government is scheduled to present its draft budget for 2027 on October 1.

The spike in oil and natural gas prices triggered by the war in the Middle East continues to weigh on Europe’s economy, prompting the ECB to tighten monetary policy, according to Bloomberg. Nevertheless, in France, according to preliminary estimates, prices rose more slowly than in other European countries. This is partly because nuclear power plants provide a significant share of the country’s energy, while the economy was held back by an abnormal heat wave and uncertainty surrounding policy and the budget, Bloomberg notes.

Earlier, Spain reported a sharp acceleration in inflation in September to 4.9%, according to preliminary data (this figure was six-tenths of a percentage point higher than in August). In Italy, the inflation rate also exceeded 3%. Later on Wednesday, Germany is expected to release a similar figure. According to preliminary data, inflation rose in five key German states in September, indicating a possible increase in Germany’s nationwide inflation rate this month to 3.2% from 2.9% the previous month, Reuters reports.

On October 2, Eurostat will release inflation data for the 21-country eurozone as a whole. According to economists' estimates, inflation has reached a three-year high of 3.7%.

At its most recent meeting, the European Central Bank raised its key interest rate for the second time this year—to 2.5%.

This article was AI-translated and verified by a human editor