French annual inflation in March eased more than expected to the lowest level since 1999, the statistical office INSEE reported Friday. Separately, the statistical office said industrial production dropped at a slower pace in February.

Annual inflation eased to 0.3% in March from 0.9% last month. Consumer prices rose less than the expected rate of 0.4% on falling energy prices. The inflation rate in March was the lowest since June 1999.

Annual increase in consumer prices was largely led by food and services costs, which increased 1.7% and 2.4%, respectively. Manufactured goods cost edged up 0.1% and that for tobacco moved up 0.6%. Annual inflation was pulled down by 12.9% decrease in energy cost.

From February, the consumer price index for all households rose 0.2%, much slower than the 0.8% increase seen in March 2008. Monthly inflation also stood below the expected 0.3%.

The harmonized index of consumer prices climbed 0.2% from February, taking the annual increase to 0.4%. Economists were looking for a 0.3% monthly increase and 0.5% on a yearly basis.

The underlying monthly inflation rate was 0.1% and core annual inflation stood at 1.6%.

In a separate communiqué, the statistical office said industrial production slid 0.5% on a monthly basis in February. The decline in February was slower than January's 3.9% decrease and 1% fall expected by economists.

Meanwhile, manufacturing production slipped 0.1% from the previous month compared to a 5% decline in January. Economists were looking for a monthly 1.2% drop.

According to statistical office, manufacture of food products and beverages was down 1.1% from the previous month and transport equipment production dropped 1.1%. By contrast, coke and refined petroleum production surged 11.6% and that of electrical and electronic equipment production went up 0.6%.

The Organization for Economic Co-operation and Development expects the French economy to shrink over 3% this year, with the pace of contraction gradually diminishing throughout the year. Improving credit conditions and policy stimulus at home and abroad would contribute to a recovery in 2010, the report revealed. Further, the OECD said inflation could fall to near zero by end-2010.

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