Inflation in France accelerated for the first time this year, akin to trends in other countries in the region as the European Central Bank gets ready to reduce interest rates.

According to the Insee statistics agency, consumer prices in the eurozone's second-largest economy increased by 2.7% in May compared to the same month last year, a rise from 2.4% in April. 

This figure slightly surpassed the average estimate of 2.6% from a Bloomberg survey of economists.

The acceleration was driven by a 5.8% increase in energy prices, while the closely monitored services inflation declined to 2.7% from 3% in April, Insee went on to add.

Following similar increases reported by Germany and Spain, analysts had previously forecast that data for the eurozone would show an inflation rate of 2.5%, up from 2.4% the previous month. 

Yet the data, published on Friday, indicated that inflation in the eurozone rose to 2.6% year-on-year in May, up from 2.4% in April, and exceeding expectations.

The eurozone economy also grew faster than anticipated in the first quarter as it emerged from recession, although its growth remains sluggish compared to the robust expansion of the US economy, France 24 reports.

Although inflation is drifting away from the ECB's 2% target, disinflation is expected to continue later this year. Officials are likely to proceed with the deposit rate cut they have indicated for 6th June, Bloomberg reports.

“Some of the pressures on energy should unwind in June and we expect headline inflation to fall back to 2.5% and continue on a downward trajectory over the coming quarters. Still, the descent will be bumpy — sticky services inflation and further upside risks to energy costs are likely to keep the headline reading above 2% through most of 2024,” said Bloomberg Economics economist, Eleonora Mavroeidi.

Furthermore, the Bank of France also anticipates a slight increase in GDP this quarter. However, consumer spending unexpectedly declined by 0.8% in April due to reduced food expenditures, according to Insee. 

Although France has avoided a recession, economic sluggishness has hindered the government's efforts to reduce unemployment and rebuild public finances following the pandemic and energy crises. As such, the government is relying on slower price growth to increase real wages and stimulate the economy. 

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