Rising oil prices pushed up French inflation in April, according to data on Friday which is likely to keep the European Central Bank alert to the risk that record high oil prices could generate price pressures in the euro zone.
Consumer prices in the bloc's second biggest economy rose 0.4 percent from the previous month and climbed 2.0 percent from a year earlier, national statistics office INSEE said. That was above economists' forecast for a 1.9 percent annual reading.
While underlying measures of inflation remained subdued, analysts said the report was symptomatic of a euro zone-wide trend that was leading financial markets to expect the ECB to raise interest rates in June to keep price pressures in check.
"France is not the euro zone but the increase in prices in April argues for the ECB to continue to normalise monetary policy without going so far as to brake" economic activity, said Jean-Louis Mourier, economist at Aurel Leven in Paris.
Such views have been bolstered by comments by ECB officials like Governing Council member Axel Weber, who said on Thursday that the oil shock threatened to push up core inflation, a danger the central bank would ignore at its peril.
An early estimate of euro zone inflation released towards the end of April showed consumer prices in the 12-member bloc rose 2.4 percent in April from 2.2 percent in March.
UNDERLYING INFLATION:
The increase in the annual rate from March's 1.7 percent was driven by a jump in energy costs. An inflation measure excluding energy prices rose just 1.1 percent from a year earlier.
Energy prices rose 2.4 percent from the previous month and 9.1 percent from a year earlier with prices of petrol products surging even more sharply, up 11.2 percent year-on-year. "The acceleration in inflation is mainly due to petrol. If you look at the underlying inflation rate, it is clear that there are few inflation pressures otherwise," said Laure Maillard, economist at IXIS CIB in Paris.
"This is another argument for the European Central Bank to remind people that inflation risks are rising but its diagnosis should be moderated by the fact that it is really all down to petrol prices."
French Finance Minister Thierry Breton said in a magazine interview published this week he saw no second-round inflation risks from high oil prices in France.
"Contrary to what we might have feared, inflation is very contained," he told Challenges magazine.
Exporters, who have seen the euro rise to one-year highs against the dollar, are also inclined to quibble with the ECB's concern about inflation risks.
"It's worrying that we are the only region of the world that, thanks to a central bank whose main objective appears to be to push up the euro, doesn't use its currency as an economic weapon," Bernard Arnault, the chairman of LVMH, the world's largest luxury goods group, said on Thursday.
TRADE DEFICIT:
Expectations the ECB will raise euro zone interest rates are among the range of factors which have helped lift the euro to one-year highs against the dollar.
Breton told Challenges that recent moves in the euro's exchange rate against the dollar were only "small fluctuations" and highlighted the benefits of a strong euro which made raw materials denominated in dollars cheaper for the euro zone.
But exporters were more focused on the problems of a rising euro, which makes their goods more expensive in foreign currency terms and erodes the euro value of their overseas earnings.
Such concerns have been particularly rife in France, which reported a record trade deficit in 2005, a year in which its exports markedly underperformed Germany's.
Customs office data on Friday showed an unexpected narrowing in the trade deficit, which came in at 1.957 billion euros in March from a revised 2.186 billion euros in February.
Analysts welcomed this but warned against too much optimism.
"We have seen a slight decrease in the deficit month after month, with exports being a bit better oriented than imports. That is rather encouraging. But it's still a deficit," said Nicolas Claquin, economist at HSBC France.
"And in 2006, we cannot really hope for a return to a positive number."
Exporters claim they could do better with a weaker euro.
If the euro were allowed to fall "there would be a wave of dynamism that would encompass the whole of the European economy. But we are refusing obstinately, in the name of non-existent inflation, to use this tool," Arnault said.
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