France’s very low inflation rate is a major challenge for public finances in World Economy News 20/02/2026 French inflation persistently undershooting the eurozone’s average In France, inflation stood at 0.3% year-on-year in January, down from 0.8% in December. According to the harmonised index, it reached 0.4%, compared with 0.7% the previous month. Such a low level had not been observed since the Covid-19 pandemic, a period marked by the collapse in demand linked to lockdowns. Before that, one would have to go back to 2016. This weakness is primarily explained by the sharp fall in prices of manufactured goods (‑1.2% year-on-year), linked to a change in the seasonal sales timing. Energy prices are also weighing heavily on inflation, with a year-on-year decline of 7.6%, reflecting both developments in global markets and the 15% cut in regulated gas tariffs decided in February 2025. By contrast, food inflation accelerated in January to 1.9% year-on-year, while services inflation slowed to 1.7%. Core inflation stands at just 0.7%. The French situation contrasts sharply with that of the rest of the euro area, where inflation reached an average of 1.7% in January according to the flash estimate, and where core inflation remains much higher, at 2.3%. In this context, criticism is growing in France of an ECB monetary policy deemed ill-suited to the national situation. With the key interest rate held at 2% for several months, some argue that the French economy is being subjected to an excessively restrictive policy. This issue was once again raised by the Governor of the Banque de France, François Villeroy de Galhau, this Wednesday before the National Assembly. Is monetary policy too restrictive for France? It is true that with very low inflation and policy rates at 2%, the real interest rate faced by the French economy is positive and higher than in neighbouring countries where inflation is more dynamic. Some people argue that this weighs on investment and, more broadly, on economic activity. However, in assessing how restrictive monetary policy is, it is not inflation in a single month that matters, but rather expected inflation and its trajectory over the coming years. Inflation is expected to rise in France in the months ahead. The timing of seasonal sales differs in 2026 compared with 2025, which will lead to a more pronounced increase in prices in February. In addition, the 15% cut in electricity prices implemented on 1 February 2025 will drop out of the base effect this month, mechanically pushing energy inflation higher. This rebound will nevertheless remain limited, and my forecast of average inflation of 1.3% in 2026 already appears optimistic. With inflation close to 1% in France, it will continue to be well below that of the euro area, where we expect inflation to average 1.9%. However, investment decisions probably consider longer-term inflation expectations. In that regard, the priced in inflation by the market for France over the next 10 years is only marginally below the eurozone’s average market pricing of inflation. Anyway, inflation differences between member states are normal within a monetary union and will not lead the ECB to change its stance, as long as there is no risk of an inflation undershoot for the whole of the eurozone. Monetary policy must be set for the euro area, not tailored to a single country. Nevertheless, it is likely that the Governor of the Banque de France will continue to warn his counterparts about t