French inflation rebounds to 2.4% as energy costs pressure ECB

French consumer prices rose 2.4% in July from a year earlier, up from 2.0% in June, according to EU-harmonized figures published Friday by France's statistics agency. Double-digit energy inflation continued to drive the headline number higher, while services prices also accelerated notably — a sign that higher oil-and-gas costs from the Iran war are feeding into the wider economy.

The reading takes French inflation back above the European Central Bank's 2% target after it declined to that level in June. Inflation had hovered around or below 1% between early 2025 and the outbreak of hostilities on Feb. 28, when the closure of the Strait of Hormuz choked off about a fifth of global oil supply. The jump marks a sharp reversal from the disinflationary run that had allowed the ECB to hold rates steady through the spring.

The ECB left its key interest rate on hold earlier this month, with most investors expecting a hike at its next meeting in September. The deposit facility stands at 2.00%, the main refinancing rate at 2.15% and the marginal lending facility at 2.40%, unchanged since April. Money markets have begun pricing in a quarter-point increase as energy costs climb.

French data came a day after figures showed German inflation climbed to 2.8% in July, mostly on energy prices and the elapsing of a fuel tax-rebate program. Eurozone-wide inflation data is due at 0900 GMT.

Energy costs drive the rebound

The acceleration in services prices is the more worrying signal for policymakers, because it suggests the energy shock is spilling into domestically generated inflation rather than remaining confined to fuel and utility bills. Services inflation has been a key focus for the ECB as it weighed how persistent price pressures would prove, and the July reading points to broader pass-through of higher input costs across the economy.

Oil markets remain volatile. Brent crude slid more than 2% to about $84 a barrel on July 28 as the U.S. and Iran agreed to pause hostilities, then jumped 3.8% to around $87 after Iran launched a surprise ballistic-missile attack on American forces in Jordan the following day. The swings show how fragile the path back to stable energy prices is, and the euro has struggled to find support as investors weigh the inflation outlook against the risk of further escalation. European government bond yields have tracked oil higher, with the transmission from energy to rates tightening financial conditions across the bloc.

What's at stake for the ECB

For the ECB, the twin data points from France and Germany complicate the calculus heading into September. With both of the bloc's largest economies printing inflation above target, the case for a quarter-point hike strengthens — even as the eurozone economy shows signs of strain. The last time French inflation ran this hot on an energy-driven surge, the ECB responded with successive rate moves to rein in price growth, a precedent that suggests policymakers will lean toward tightening rather than waiting for the shock to fade on its own.

If energy prices keep climbing, headline inflation across the eurozone could push further above target, forcing the ECB to act. If the Middle East conflict de-escalates and oil retreats, policymakers may find room to hold. The eurozone-wide print due Friday will be the next data point investors watch, and it will likely determine whether the September meeting delivers a hike or another hold.

This article is for informational purposes only and does not constitute investment advice.