French inflation fell to 0.1 percent in April, the lowest level since 1957, the statistics institute INSEE said on Wednesday, after prices rose on a monthly basis by 0.2 percent. Underlying inflation excluding seasonal products and energy prices remains higher, at 1.6 percent on the year, the same as in the previous month.
Inflation rate is expected to enter negative territory this month, signalling deflation, but experts pointed to the stabilisation of the underlying French rate as a good sign, arguing that the risk of prolonged deflation was receding. "It's great news," said Nicolas Bouzou, of analysts Asteres. "The most interesting point is that, even if prices have stabilised, there is no clear sign of deflation." Inflation has been kept low by falling prices for new cars, down 0.3 percent in April, and for food and drugs, down 0.1 percent, according to the state agency's latest monthly report.
Over the year, fuel prices have come down by more than 22 percent. Last week the European Central Bank cut its base rate to a historic low of one percent in the hopes of stimulating demand in the continent's recession ravaged economies. "We can be sure that when the recovery begins - and we hope to see it by the end of the year - its strength will depend on household consumption, given how weak industry is," said Alexander Law, of the Xerfi consultancy.
Most observers welcomed the fall in prices, in particular the ongoing drop in energy costs, and said that this would encourage nervous French consumers to begin spending their way out of recession. While most played down the risk of deflation, Marc Touati of advisers Global Equities, said it remained a real threat that could undermine the recovery for many years.
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