Inflation rate was at 1% in France in February after 1.2% in January. Core inflation rate (ex energy and food) is at 0.6%. The first chart shows the steep trend since last summer.

What is bothering is the trend in the core inflation rate. This shows that there are no pressures on the productive system in France, no pressures on the labor market and on wages.

This reflects a weak demand. Austerity policy with rapid public deficit reduction could amplify this phenomenon and the risk then is deflation.

Looking at contributions to inflation rate shows that all of them except tobacco are downside trending. This is the case for energy and food prices. There is no surge in commodity prices that could immediately change this picture.

Services contribution is on a downward trend and manufactured goods contribution has been negative for the last 2 months.

The third chart shows GDP and employment. Q4 employment was published this morning and deeply revised on the downside. In the flash estimate employment was down by -28 100, in this morning estimate it was down by -44 700 and for the whole 2012 it was down by -99 500.

On the third chart we see that since Q2 2011 employment was reduced by -0.8%. On the same period GDP was down by only -0.1%. In 2013 growth number will be close to 0 (probably negative) and we can imagine that the steep down trend on employment will continue and could accelerate and weaken internal demand.

Jobs destruction, low inflation rate with a risk of deflation is a combination that cannot be solved by austerity policies as they would amplify these trends. The ball is in Bruxelles where Mr Rehn is comfortable with this austerity strategy.