January's annual inflation rate in France rose by 1.7%, surpassing market expectations of 1.4% and higher than the 1.3% recorded in December, according to official data from INSEE.

This increase was primarily driven by a 2.5% rise in service prices compared to the previous year, and a 2.2% jump from December. Energy prices also saw an uptick, rising by 2.7% last month, compared to 1.2% in December.

Manufactured goods prices rebounded, while food prices remained mostly stable. Meanwhile, the rise in tobacco prices slowed down in January.

On a month-to-month basis, inflation edged up by 0.2% in January, the same as in December, mainly driven by higher service prices.

Energy prices also increased, rising by 1.6% in January compared to 0.7% in December, largely due to higher petroleum product and gas prices.

In addition, food prices also saw a slight rebound, rising by 0.3% in January after a 0.1% decline in December, with tobacco prices also going up. On the other hand, manufactured product prices dropped on a monthly basis, mainly due to winter sales, Euro News reports.

Despite these changes, economic and political concerns continue to persist in France, which has been grappling with heightened political instability following the government's collapse in a no-confidence vote last December.

“The jump in French headline CPI in January primarily came down to the more volatile components of the index, including food and energy,” said Kyle Chapman, FX markets analyst at Ballinger Group.

“The core measure was relatively steady and sits well below the 2% target, as it has done for some time. For the ECB, cooler and less inflationary economies like France are less concerning than the likes of Germany and Spain.”

Furthermore, the European Commission's economic forecast for France suggests that domestic demand will help support the country's economy this year, primarily driven by higher real wages and disinflation.

Yet private investment is anticipated to remain slow in 2025, as adjustments to monetary policy take time to take effect. Additionally, ongoing political and economic uncertainty in France is expected to contribute to this sluggish investment trend.

Moreover, economic activity in France is projected to accelerate in 2026, with GDP growth expected to rise to 1.4%, up from an anticipated 0.8% this year. This growth is likely to be driven by further declines in credit costs, as well as increased private domestic demand and private investment.

The European Commission forecasts that inflation will average around 1.9% this year, with a slight decrease to 1.8% expected next year.