French Inflation Rate Falls to Lowest in 10 Months as Oil Drops

By Francois de Beaupuy

Nov. 13 (Bloomberg) -- Inflation in France slowed the most in almost a year in October after commodity prices declined and the global credit crisis cooled economic growth.

Consumer prices climbed an annual 3 percent based on European Union methodology, the least since December 2007 and down from 3.3 percent in September, Paris-based national statistics office Insee said in a statement today. Economists expected a rate of 2.9 percent, according to the median of 21 forecasts in a Bloomberg News survey. Prices fell 0.1 percent from September.

The inflation drop ``reflects mainly the direct effect of sharply lower oil prices, combined with base effects from food prices,'' said BNP Paribas economists Luigi Speranza and Eoin O'Callaghan in a research note before the report. ``Recent developments at the factory gate suggest the upward trend in inflation in manufacturing goods is close to its peak, pointing to a further slowdown ahead.''

Inflation in France and Europe has been slowing as oil has declined more than 60 percent since a July record and food costs have eased. The global economic slowdown may further depress prices as consumers pare spending, making it easier for the European Central Bank to further reduce borrowing costs as the economy of the 15 euro nations moves toward a recession.

New Forecasts

On Nov. 4, the European Commission slashed its euro-region growth forecasts, predicting the economy will stagnate in 2009 after shrinking for three consecutive quarters this year.

The Frankfurt-based European Central Bank cut its key rate by 50 basis points to 3.25 percent last week, its second move in a month, and its President Jean-Claude Trichet has said he can't rule out another rate cut as the crisis may cause a global slump.

Inflation in the euro area eased to 3.2 percent in October, the European Union's statistics office said on Oct. 31. That compares with 3.6 percent in September and is the slowest pace since January.

In France, inflation slowed from a peak of 4 percent in June and July, the highest since Insee began reporting the EU- harmonized data in 1996. Crude oil fell as low as $59 a barrel in October, down from a July record of $147.27 a barrel.

Under the French methodology, which differs from the EU one mostly in the way drug costs are taken into account, consumer prices rose 2.7 percent in October from a year earlier. Core inflation, which excludes fresh food and energy costs, rose 2.1 percent from a year earlier.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.