Double dose of good news for French economy

22nd February 2005, Comments 0 comments

PARIS, Feb 22 (AFP) - French authorities got a double dose of good news Tuesday, with announcements that inflation saw its sharpest monthly fall in 40 years in January, and that consumer spending was stronger than expected.

PARIS, Feb 22 (AFP) - French authorities got a double dose of good news Tuesday, with announcements that inflation saw its sharpest monthly fall in 40 years in January, and that consumer spending was stronger than expected.

Clothing sales and cheaper manufactured products pushed French consumer prices down by 0.5 percent in January, the biggest drop since the mid 1960s, data released by the national statistics institute INSEE showed.

The decline brought annual inflation to 1.6 percent, the lowest level since July 2002, the institute said.

"One has to go back to the mid 1960s to find as big a fall" as that from December to January, it added in a statement.

French consumers meanwhile splurged on everything but cars last month, boosting household consumption by 1.5 percent from December and by 3.8 percent on an annual basis, according to INSEE.

Economists had expected such spending to be stable last month compared to December.

"We have the best French inflation figure for several dozen years, we have industrial investment and consumption that are holding up well," declared Prime Minister Jean-Pierre Raffarin.

"It's a major satisfaction."

In addition to a dynamic real estate market, household spending was bolstered by lower prices of electronic goods imported from Asia. Such purchases were up 17.3 percent in January from the same month in 2003.

Prices were down 15.8 percent in annual terms.

Economists see average inflation of between 1.5 and 1.7 percent in France this year, which should serve to underpin purchasing power.

They also predict that households will take advantage of low interest rates as well as certain government measures that encourage consumers to spend rather than save.

While buoyant consumer spending might continue into 2005 however, according to economist Emmanuel Ferry at brokers Exane BNP Paribas, it could produce growth that is "unbalanced, vulnerable and standing on a single leg," especially as business investment and exports are likely to be lacklustre.

© AFP

Subject: French News

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