Headline inflation lower, but core may edge higher

FRANCE AUG HICP +0.4% M/M (FCST +0.6%); JUL +0.3% M/M

FRANCE AUG HICP +6.5% Y/Y (FCST +6.7%); JUL +6.8% Y/Y

• Both month-on-month and annualised HICP prints were 0.2pp milder than expected in the August flash estimate. HICP increased by +0.4% m/m (vs +0.3% in July) and by +6.5% y/y (vs +6.7 in July). The national CPI figures mirrored this trajectory.
• The slowing of inflation was largely due to decreased energy prices. Service price inflation progressed at the same rate as last month, whilst manufactured goods and food price inflation continued to accelerate.
• As such, the core inflation (due with the final release) will likely see another small uptick, adding to anticipated accelerations in both Spain and Germany inferred from yesterday's data.
• Factory gate inflation saw little relief in July, accelerating by +1.6% m/m, a 0.3pp uptick and holding steady close to highs at +27.2% y/y.
• Final GDP for Q2 was confirmed at +0.5% q/q and +4.2% y/y.
• The report also detailed a substantial slump in consumer spending in July, whereby spending contracted by -0.8% m/m and -4.3% y/y, 0.6pp and 0.4pp worse than the consensus expectations.
• Despite the continued decline in consumer spending and waning demand, the persistent acceleration in underlying inflation will likely trump in importance for the ECB ahead of the September meeting, underlining the need for further tightening.
• Italian and Eurozone August flash CPI data is due at 1000 BST.