Following the release of softer-than-expected inflation numbers from Spain and Germany yesterday, French inflation details, as anticipated, were less dovish compared to their European peers. 

The latest data from INSEE highlights that accommodation, food, and transport, influenced significantly by the upcoming Olympics, were the primary drivers of price increases. Manufactured products also saw a rise, notably due to the end of summer sales impacting clothing and footwear prices, while food and services prices continued to climb. However, energy prices declined, and tobacco prices remained stable. 

The French HICP came in at 0.6% month-on-month, though this figure drops to around 35bps when adjusted for seasonality. Despite being lower than July’s figure, the inflationary pressures linked to the Olympics suggest a relatively soft outcome.

Given this context, we continue to favor a relative bet on GBP rates versus EUR rates as GBP rates are likely the next shoe(s) to drop.

Chart 1: Hotter French than German inflation