French Producer Prices Dip Lower, But Second Round Inflation Risks Remain

[DailyFx]

French August producer prices dropped -0.5% MoM, and were up 6.9% YoY, after 0.7% MoM and 7.7% YoY in July. The breakdown showed that a 3.1% MoM decline in prices for energy products brought the August rate down. Excluding energy prices would have risen 0.3% MoM and 3.1% YoY, up from 2.8% YoY in the previous months, which indicates that elsewhere price pressures continue to build up. So the modest deceleration in the annual rate in August will do little to dampen inflation concerns. Headline CPI may have peaked, but risks of second round inflation effects remain.

French August housing starts dropped 13.1% YoY in the three months to August, while housing permits dropped 19.6% YoY. This is a renewed acceleration from the 9.5% and 16.0% average declines respectively in the past 12 months and highlights the extent of the slowdown in the French housing market. The sharp drop in construction activity is weighing on overall production trends and will also have an impact on the labor market, which in turn is hitting consumption trends. So far there is no sign that the sector has bottomed out and the ongoing adjustment will continue to hit growth.