(Bloomberg) -- French inflation unexpectedly held steady at the start of the year, while German regional data slowed sharply, prompting traders to boost bets on European Central Bank interest-rate cuts.
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French consumer prices rose 1.8% from a year ago in January, matching December’s reading, statistics agency Insee said. Analysts in a Bloomberg survey had estimated a 1.9% advance. Germany’s two biggest states, meanwhile, saw readings of 2% and 2.5%.
The data come less than a day after the ECB lowered its deposit rate by a quarter-point for a fourth straight meeting, to 2.75%. It reiterated that the continent’s disinflation process is “well on track,” despite lingering pressures in the services industry.
With price gains well down from 2022’s double-digit high, officials may stop referring to their policy stance as “restrictive” at the next meeting, in March, according to people familiar with the matter who asked not to be identified citing confidential discussions.
President Christine Lagarde refused to offer concrete guidance on borrowing costs this week, reaffirming that the direction of travel is clear.
Friday’s inflation figures saw traders pile into bets on further easing. Money markets now price 83 basis points of rate cuts in 2025 — up from about 70 basis points earlier in the session. Elsewhere, the euro fell 0.2% to $1.037, while European bonds rallied, with two-year German yields down nine basis points at 2.12%.
There’s more price data due later in the day, with January’s figure for Germany as a whole seen unchanged at 2.8%. The 20-nation euro zone will report numbers Monday. A Bloomberg Economics nowcast points to an acceleration to 2.6%.
A monthly ECB survey of consumers on Friday showed that caution remains warranted. Their expectations for inflation over the next 12 months increased for a third month in December, to 2.8%, while remaining unchanged at 2.4% for three years ahead.
Professional forecasters also revised up their forecasts for price growth this year, according to another poll by the central bank, but they still see it hovering around 2% through 2027. Their longer-term expectations also remain anchored at that level.
Slower increases in workers’ pay should help keep inflation in check, a separate ECB survey showed. Companies indicated that wage gains are likely to ease in both 2025 and 2026.