France's inflation rate fell to a four-year low in May. Is the ECB expected to cut interest rates in June?

The Zhitong Finance App learned that France's inflation rate fell further below the ECB's target, reaching its lowest level in more than four years, supporting the ECB's view that interest rates may be cut further. According to data released on Tuesday, France's harmonized CPI rose only 0.6% year on year in May, the lowest level since December 2020, lower than market expectations of 0.9% and the previous value of 0.9%.

France's inflation rate increased only slightly in May, mainly affected by an 8.1% year-on-year drop in energy costs and a 0.2% year-on-year drop in manufactured goods prices. In the service sector, which has received close attention as an indicator of potential price pressure, the inflation rate fell from 2.4% to 2.1%.

France's weak inflation data reflects the background of a slowdown in overall economic growth in the Eurozone. The May inflation data for the Eurozone's largest economies is expected to fall short of the ECB's 2% target. The May inflation data for Italy, Germany and Spain will be released on Friday. Eurozone inflation data for May will be released next week.

Continued decline in Eurozone inflation may encourage policymakers to cut interest rates further to deal with the uncertainty brought about by US President Trump's tariff threat. Bank of France Governor Francois Villeroy de Galhau said on Tuesday that France's latest inflation data is “another very encouraging sign of anti-inflation,” and “as a result, the normalization of monetary policy is certainly not complete. Under the circumstances, we can see this at next week's policy meeting.”

The market currently anticipates that the ECB will lower the benchmark interest rate at the June 5 policy meeting. Furthermore, the market also expects the ECB to cut interest rates once more after June. At that time, the ECB's deposit mechanism interest rate will bottom out at 1.75%.

ECB Governing Council member Gediminas Simkus said on Monday that the risk of Eurozone inflation falling below the 2% target is increasing. Gediminas Simkus said that due to trade frictions with the US and the strengthening of the euro, the balance of risk faced by consumer prices is declining. Gediminas Simkus also said that borrowing costs are currently at the upper end of the neutral interest rate range. He believes that the ECB “has room to cut interest rates” at the next policy meeting to be held in June, and “the risk that future inflation will fall below target has increased.”