The French preliminary Consumer Price Index (CPI) for August increased by 0.9% compared to the same month last year. This growth is slightly lower than the expected 1.0%. In July, the CPI was at 1.0%. The Harmonised Index of Consumer Prices (HICP) showed a 0.8% rise on an annual basis, falling short of the predicted 0.9% and down from the previous 0.9%. Month over month, consumer prices went up by 0.4%, marking the third month in a row of increases.

Moderation In Inflation

The annual figures suggest a small easing in inflation, especially in the services sector, which decreased from 2.5% in July to 2.1% in August. This data sheds light on the inflation trends affecting the French economy. The slightly lower inflation figures for August support the idea that price pressures are easing across the Eurozone. This could signal a more relaxed stance for the European Central Bank (ECB), particularly since the crucial services inflation component has shown a notable decline. This reinforces the effectiveness of the aggressive rate hikes observed until the end of 2024. For traders, this information strengthens the rationale for preparing for lower interest rates soon. We suggest buying futures contracts tied to the Euro short-term rate (€STR) that mature in early 2026. The market already anticipates at least two cuts to ECB rates within the next six months, and this data might accelerate those expectations.

Disinflationary Trend Supportive for Equities

The disinflation trend is also beneficial for European stocks, hinting that borrowing costs may decrease sooner than expected. It would be wise to consider buying call options on the Euro Stoxx 50 index, aimed at expirations in the fourth quarter. Historically, markets have seen strong rallies when the direction shifts from rate hikes to cuts, similar to what we saw in late 2024. In currency markets, the likelihood of an earlier ECB move compared to the US Federal Reserve—which is still grappling with wage growth above 3.5%—will probably put pressure on the euro. This makes buying put options on the EUR/USD pair a smart way to prepare for further declines. The pair has already fallen below the 1.0700 mark after the report, a crucial technical point. While this data isn’t shocking on its own, it increases attention on the upcoming composite Eurozone inflation report. We expect implied volatility for options expiring around that time to rise. Thus, establishing long volatility positions, like straddles on the German DAX index, might be beneficial to capture a bigger market reaction to the pan-European data. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now