EUROPEAN INFLATION: France downside surprise look driven by services

Looking at the drivers of the national CPI (non-HICP) surprise, it appears as though the main surprise was in services, with the energy contribution largely factored into forecasts. As noted earlier, the national CPI (non-HICP) surprised to the downside by just over 2 tenths at 0.75% - which rounded up to 0.8% to 1dp (1.0%Y/Y consensus, 1.65%Y/Y). M/M this was -0.02% (0.2%M/M consensus, 0.16%Y/Y).

• Energy was the biggest driver as expected, falling 5.73%Y/Y after a 2.75%Y/Y increase in January. This was flagged in our preview - there was a 15% decline in French regulated electricity prices. This saw a fall of 4.51%M/M for energy overall.
• Services CPI some a notable deceleration to 2.13%Y/Y in February from 2.45%Y/Y in January. This was a 0.52%M/M increase (0.33% prior). We think that this is likely the main surprise in the data - but there are no further details available in the flash on the specific drivers.
• Manufactured products prices only increased marginally by 0.02%Y/Y in February from 0.15%Y/Y in January.
• Tobacco prices also only saw a 4.49%Y/Y increase (following 6.01% in January).
• Food prices' Y/Y increased in February at 0.34%Y/Y (0.10%Y/Y prior). On a M/M basis this was a fall of 0.08% in February (+0.30%M/M in January). We hadn't seen specific forecasts for French food inflation, but analysts had expected around 20bp increase across the Eurozone for this category, so this looks broadly consistent. Specifically fresh food prices rose 1.84%Y/Y (+0.42% prior), -1.39%M/M (2.82% prior).
• The February flash PMI noted: “A more competitive market prevented businesses from fully passing on cost increases. Prices charged for French goods and services rose only fractionally on the month.” This appears to be seen in both the services and manufactured products prices in this release.