Inflation exceeds the 6% mark in France

Posted Jul 29, 2022, 9:20 AMUpdated on Jul 29, 2022 at 10:49 am

No respite for inflation, but grounds for hope. In July, consumer prices soared by 6.1% over one year after rising by 5.8% in June according to the provisional estimate published this Friday by INSEE. Unheard of since the mid-1980s.

Inflation spreads throughout the economy. It is increasingly affecting services, the prices of which rose by 3.9% over one year, manufactured goods (+2.9%) and food products. Over one year, the latter are now recording a price increase of 6.7%, which is more than general inflation.

Still up nearly 29%, energy prices are nonetheless slowing down, reflecting the recent drop in oil prices. Over one month, consumer prices increased by only 0.3% against +0.7% in June, also calmed down by the discounts offered during the sales. A harbinger of a possible lull.

The positive impact of the 30 cent rebate

Today, economists also believe that the rise in prices in France will slow faster than expected. “The law on purchasing power and the probable easing of oil prices given the international situation should allow France to avoid a peak of inflation at 7% in September”, assures Ana Boata, chief economist of Allianz Trade.

While the “tariff shield” on energy prices, as well as the rebate at the pump, already allow France to have lower inflation than the other countries of the euro zone, the reinforcement of the rebate at the pump of 18 cents to 30 cents in September could also have a virtuous effect.

“If this measure materializes, it could lower the level of inflation by a few tenths of a point,” calculates Julien Pouget, chief economist at INSEE. “The impact of the 18-cent discount had been assessed at 0.4 points less on the overall annual shift in prices, in April and May,” he recalls.

The deterioration of the international situation – contraction of American activity, slowdown in China and Germany – should also help to calm prices. “Brent prices have calmed down a bit, and could possibly continue to fall, against a backdrop of fairly uncertain global economic prospects”, confirms the INSEE economist, also pointing to “an already perceptible relaxation in wheat and certain raw materials. And “the business tendency surveys show a slowdown in expectations of price increases in industry,” he adds.

Would a decline in inflation revive household consumption, which has been sluggish since the start of the year? In any case, this is the scenario of certain economists. “If inflation subsides, households should start spending again in the coming months. And all the more so as the new devices being examined in Parliament will support purchasing power,” notes Stéphane Colliac at BNP-Paribas. Bercy expects a 0.5 point gain in household purchasing power this year. “However, household consumption should not return to its pre-crisis level until mid-2023,” warns Stéphane Colliac.

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