Villeroys: May slightly increase French 2026 inflation forecast

The Bank of France is expected to marginally revise its inflation forecasts for France in 2026, reflecting a modest uptick in economic resilience amid ongoing fiscal and political challenges. Governor François Villeroy de Galhau indicated that the central bank will publish updated projections on December 19, 2025, with growth forecasts adjusted upward to 0.7% for 2025 and 0.9% for 2026, from previous estimates of 0.7% and 0.9%, respectively. This slight revision follows a fourth-quarter business sentiment survey showing France's economy expanding by 0.2% in the final months of 2025.

Despite this resilience, France's inflation rate remains significantly below the eurozone average, standing at 0.4% year-on-year in January 2026, driven by declining energy prices. Villeroy emphasized that while low inflation supports purchasing power and wage moderation, it poses risks to public finances. With nominal GDP growth projected at around 2% in 2026 and implicit debt interest rates rising to 2.2%, the country faces a growing debt-to-GDP ratio, exacerbated by a planned 5% fiscal deficit.

The European Central Bank (ECB), which maintains a 2% key interest rate, is closely monitoring the euro's strength against the U.S. dollar, which could further suppress inflation by lowering import prices. Villeroy noted that while the ECB does not target exchange rates, currency trends remain a critical factor for inflation and growth outlooks. He also highlighted the disinflationary impact of Chinese imports and U.S. policy uncertainty, which have contributed to market skepticism toward dollar assets.

Villeroy reiterated the need for fiscal discipline, urging France to align public spending with inflation to stabilize debt by 2029. While low inflation may bolster competitiveness in the short term, prolonged weak growth and high deficits remain structural concerns for economic stability.