Core Disinflation Expected, While Policy Changes Add Headline Uncertainty

France flash January inflation is due to be released at 0745GMT/0845CET Wednesday, with various Government policy changes expected to drive monthly rates among non-core components.

• HICP consensus (bbg): 3.6% Y/Y (4.1% prior) / -0.1% M/M (0.1% prior)
• CPI consensus (bbg): 3.3% Y/Y (3.7% prior) / 0.0% M/M (0.1% prior)

Analysts note that an increase in the excise tax on natural gas will increase prices for households with fixed gas tariffs.

• Barclays pencil in a +2.5% M/M increase in French gas HICP.
• Nomura look for a larger +8.0% M/M rise.

Looking ahead, the French finance minister announced this month that the household electricity price cap will be increased by no more than 10% on Feb 1.

• Additionally, an increase in tobacco duties of around 4% was implemented in January.
  • Morgan Stanley see this increasing headline inflation by 7bp overall.

Core inflation is expected to continue disinflating. Goldman Sachs expect “low sequential package holiday, accommodation, and airfares inflation” to help bring the M/M core rate to 0.16% M/M (vs 0.26% prior).

• As in Germany, the January flash PMI cited a rise in input prices and output charges amongst services providers. “Salaries, energy and certain raw materials were cited as sources of inflation”.