Negative French inflation adds pressure on ECB

By Leigh Thomas

PARIS (Reuters) - French inflation unexpectedly turned negative in February for the first time in a year on slumping energy prices, adding pressure on the European Central Bank in its uphill fight to revive price growth.

Along with slightly negative inflation in several large German states and a steep decline in Spain, the latest figures make grim reading for the ECB as it prepares to review its bond-buying program next month.

French consumer prices fell 0.1 percent over 12 months, the INSEE statistic agency said in a first estimate of EU-harmonized inflation data. Economists polled by Reuters had expected on average an inflation rate of 0.1 percent in February.

While energy prices dropped 6.8 percent over one year, prices for manufactured goods dipped 0.2 percent with winter sales under way while prices for services rose at a slower pace of 0.8 percent, down from 1.1 percent in January.

"We are still in an uncomfortably low inflation period that is unlikely to offer much calm about price dynamics," BNP Paribas economist Helene Baudchon.

Though mainly due to tumbling energy prices, weaker inflation in a major euro zone country like France complicates ECB's task.

It aims to get euro zone price growth to close to but less than two percent and expectations are high that next month it may ramp up its program of buying billions of euros of government bonds in hope of reigniting price growth.

In Spain, inflation fell at the sharpest pace since October, down 0.9 percent year on year, while in the German states of Saxony and Bavaria 12-month inflation was -0.1 percent.

Offering some consolation that weak prices are not a reflection of economic slack, France's economy grew slightly faster than expected at the end of last year, according to data released on Friday.

INSEE revised fourth quarter growth up to 0.3 percent from 0.2 percent in a preliminary estimate as consumer spending fell less than initially thought. Meanwhile companies' stocks of goods boosted economic output more than estimated previously while external trade was worse than previously stated.

Consumer spending also got off to a decent start in January with monthly figures showing it rose 0.6 percent from December as households spent more to heat their homes in colder weather.

(Reporting by Leigh Thomas; Additional reporting by Yann Le Guernigou; Editing by Paul Taylor)

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