* March inflation falls slightly short of forecasts at 0.7
* Industrial output also rises less than expected in Feb
PARIS, April 10 French inflation eased slightly
more than expected last month to reach the lowest level since
October, official figures showed on Thursday, adding to signs of
dissipating price pressures in the euro zone.
In a further sign of slack in the euro zone's second-biggest
economy, industrial production rose only marginally in February,
although the manufacturing sector, which excludes energy output,
fared slightly better.
French consumer prises in the euro zone's second-biggest
economy rose 0.5 percent last month, giving an annual rate of
0.7 percent, the INSEE national statistics agency reported.
Down from 1.1 percent in February, the annual rate fell
slightly short of economists average expectation for 0.8 percent
and was the weakest reading since October last year, when a low
euro zone inflation reading triggered an ECB interest rate cut.
INSEE said lower energy prices and to a lesser extent food
prices weighed on inflation while prices for manufactured goods
rebounded after the winter sale period. Core inflation, which
excludes volatile price items, stood at 0.7 percent.
Carrefour, Europe's biggest retailer, reported on
Thursday that sales at its closely watched French hypermarkets
slowed amid a price war to win over budget conscious consumers.
ECB President Mario Draghi said last week the European
Central Bank could launch unconventional measures if low
inflation persisted in the coming months.
Inflation in France and the broader euro zone has fallen
steadily in the face of weak demand although economists expect
price pressures to gradually pick up as a recovery takes hold.
Industrial production data from INSEE on Thursday showed an
increase of only 0.1 percent last month, while economists had
forecast on average an increase of 0.3 percent.
Manufacturing production, which excludes the energy and
other extractive industries, rose 0.3 percent.
The French government is banking on a plan to phase out 30
billion euros ($41.5 billion) in payroll taxes on companies over
three years to help a nascent recovery gather more steam.
($1 = 0.7234 Euros)
(Reporting by Leigh Thomas: Editing by Andrew Callus)