France’s preliminary Consumer Price Index (CPI) for July rose by 1.0% compared to last year, which is in line with expectations. The previous month’s figure was also +1.0%. The Harmonised Index of Consumer Prices (HICP) increased by 0.9% year-on-year, which is higher than the anticipated 0.8%. The last HICP reading was also +0.9%.

Service Price Inflation

Service price inflation is still a major concern, but this data is not expected to change the European Central Bank’s current viewpoint. While this inflation number from France doesn’t alter the overall situation, it does confirm our observations. Prices for services are staying high, which is a critical issue for the European Central Bank. Since this figure was anticipated, there is no sudden shock to the market. Looking back, this aligns with the June 2025 Eurozone inflation that was reported at 2.3%, leading the ECB to pause its rate-cutting strategy. Germany’s preliminary July inflation also came in stubbornly at 2.5%, reinforcing the idea that the inflation battle is ongoing. The ECB, currently holding its deposit rate at 2.75%, is likely to stay this way for now as it watches if this trend continues into the August data release.

Implications For Interest Rate Markets

For interest rate markets, this suggests that the likelihood of an ECB rate cut in September is decreasing. We may see short-term rate futures, like the December 2025 €STR futures, dip slightly as traders adjust their expectations for further easing. This supports a view of “higher for longer” rates for the rest of the year. Ongoing inflation lends some support to the Euro against currencies like the US dollar, where the Federal Reserve indicates a more stable policy outlook. Traders might start buying short-term call options on the EUR/USD, anticipating a gradual increase. The market may have become too complacent in pricing in ECB cuts that may not happen as soon as expected. For stocks, this news isn’t positive since stubborn inflation and higher rates can squeeze corporate profits. It may be wise to consider buying protective puts on the Euro Stoxx 50 index as a safeguard against a market pullback. Memories of the high inflation seen in 2022 and 2023 mean that any sign of its return will make investors anxious. Create your live VT Markets account and start trading now.

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