French inflation dipped in November as manufacturers cut their prices amid fierce competition, data showed today, and economists said the European Central Bank had room to cut interest rates further.
Consumer prices in the euro zone's second-largest economy fell 0.1 per cent month-on-month on an EU-harmonised basis, for a year-on-year rise of 2.1 per cent, national statistics office INSEE said.
This compares with an annual rate of 1.9 per cent reported for October.
Inflation was pulled down in the month by a fall in the cost of oil products, manufactured goods and fresh food. This was largely offset, however, by increases in the cost of health services and non-fresh food products, INSEE said in a statement.
"There is strong pressure on profit margins, in particular in the manufacturing sector because it is a sector where there is international competition," said Mr Emmanuel Ferry, economist at Paris-based investment house Exane.
He said the inflation data could be broken down to show the impact of oil products, the manufacturing sector and the service sector.
While the price of oil products fell and manufacturers cut prices in response to international competition, Ferry said the more domestic nature of the services sector allowed businesses to raise prices to defend their profit margins.
"Overall, the development of prices is satisfactory...It is not a brake on a further cut in interest rates. I think the inflation risk is very small," Mr Ferry said.
The data came after the European Central Bank cut interest rates by half a percentage point last Thursday, saying sluggish economic growth in the euro area was helping tame inflation.