France's annual inflation rate falls to its lowest level in three years

On August 30, France recorded a revised annual CPI rate of 2.2% in July, falling to the lowest level since July 2021, providing further justification for the European Central Bank to continue cutting interest rates after lower-than-expected inflation in Germany and Spain. The preliminary euro zone CPI annual rate for August, which will be released later today, is also expected to fall back to 2.2%. Investors believe that recent inflation trends in the euro zone, combined with slow economic growth, will prompt the European Central Bank to cut the deposit rate from 3.75% to 3.5% in September. However, some rate-setters have warned that this year's data will be volatile and that the ECB must "ignore" headline inflation data and focus on underlying (price) trends, particularly in services. France's inflation report released today also sounded a warning in this regard, showing that service sector inflation accelerated to 3.1% from 2.6% in July.