Euro zone government bond yields edged higher on Friday as recent economic data suggested the central banks' tightening cycle might end later than expected.

French inflation eased in June as energy and food price increases moderated.

Data showed on Thursday that German consumer prices rose more than expected, interrupting a steady decline since the start of the year. Inflation fell sharply in Spain and Italy.

Data from the euro area is due later on Friday.

U.S. economic data on Thursday solidified the picture of an economy and job market defying predictions of a recession, underpinning pronouncements from the Federal Reserve's chief that there is little room to let up on monetary tightening and affecting expectations about rates in the euro area.

December 2023 ECB euro short-term rate (ESTR) forwards rose to 3.9%, implying market expectations for a depo rate of around 4% by year-end.

ECB ESTR forwards no longer imply a 25 bps rate cut by the first half of next year.

Germany's 10-year bond yield, the benchmark for the eurozone, was up 2 basis points (bps) at 2.43%. It was about to end the week with a rise of 7.5 bps.

Long-dated euro area borrowing costs have been within the same range in the last few weeks, with traders unwilling to test their recent highs.

Germany's 2-year government bond yield, more sensitive to expectations for policy rates, was flat at 3.25%. It hit its highest level since October 2008 of 3.385% in early March before fears of a banking crisis led to market bets on policy rates dropping to as low as 3%.

The German yield curve eased its inversion on Friday, with the gap between 10-year and 2-year yields tightening to 83 bps after hitting its lowest level since September 1992 on Thursday at 90.5 bps.

An inverted yield curve means that markets expect rates to drop in the medium term, and it is usually a reliable indicator of a future recession.

U.S. core PCE Price Index -- a favourite inflation gauge for the Federal Reserve – will be released later in the session, with Berenberg analysts expecting a favourable 0.3% month-on-month increase. They said anything smaller might challenge the Fed's commitment to its current hawkish stance.

Italy's 10-year bond yield, the benchmark for the euro zone periphery, rose 5 bps to 4.14%. The spread between Italian and German 10-year yields widened slightly to 168 bps.

Prime Minister Giorgia Meloni said earlier this week a parliament vote on the European Stability Mechanism (ESM)- a fund created in 2012 after the eurozone sovereign debt crisis to provide a financial firewall for members of the currency bloc – would not happen and linked the debate to ongoing discussions on a broader reform of European budget rules.

(Reporting by Stefano Rebaudo, editing by Simon Cameron-Moore)