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France avoided deflation in May 2016

France succeeded to avoid deflation in May 2016, as the consumer price index for the first time since February did not recorded a decrease, but instead remains at zero on year-on-year base. In April, prices recorded a decline of 0.2% yoy and preliminary data for May showed a decline of 0.1% yoy. On a monthly basis the consumer price index in France rose by 0.4% in May, after rising by 0.1% in April. On seasonally adjusted basis it increased also by 0.4%.

The rise in consumer prices in May was mainly due to increase in prices of food and petroleum products, growing a third consecutive month. The increase in prices of other goods and services is modest. In the fifth month of the year, the food prices rose by 1% yoy since remained stable in April. The increase is mainly due to the seasonal spike in the prices of fresh food, which is more pronounced in May this year (7.5%) compared to May 2015 (3.2%).

The rise in prices of fruits (20.4%) is almost twice as large compared to last year (10.5%). Appreciation of processed products amounted to 0.2% the sixth consecutive month. The price of sugar decreased by 4.6% compared to last year, that of ready meals fell by 3.9%, while dried fruit prices rose by 4.7% and oil grows by 4.1%.

Earlier this month the Bank of France cut its forecast for inflation and changes its expectations for economic growth in 2017, the Bank changed its forecast for the harmonized index of consumer prices for France to 0.2% in 2016 and 1.1% in 2017 by 1% and 1.5%, respectively, given in December. The inflation this year will be affected by the fall in oil prices, low wages and high unemployment. These factors will affect less on prices next year, but this increase in value of the euro will keep prices of manufactured goods indicated by the regulator.

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