Back to 1985! French inflation will continue to climb to reach a peak at the end of the summer between 6.5% and 7% according to new INSEE forecasts, published this Friday, June 24. Over the year, the average should be around 5.5%: in the memory of a statistician, the phenomenon has not been seen since the 1980s.
Government measures have shielded
Unsurprisingly, more than half of inflation is still due to rising energy prices. However, INSEE predicts that energy inflation will moderate and that from the fall, the price of services will become the main driver of inflation, notably as a result of wage increases in the sector.
The institute does not fail to underline the impact of government measures to temper the phenomenon: it estimates that in May 2022, when inflation was measured at 5.2%, it would have been 2 points higher in the absence of the shield decided on the prices of gas and electricity and rebates at the pump.
Farmers and rural people most affected
In the end, household purchasing power would decrease by an average of 1% over the year. In addition to household budget support measures, wage increases will limit the shock. They should be above 6% in the market sectors, while the minimum wage could rise by more than 3% with the increases expected in the summer. The maintenance of a significant number of net job creations (200,000), and an unemployment target of 7%, also limit the decline in the standard of living.
But not everyone is in the same boat. Farmers and rural populations experience inflation that is about one percentage point higher than the rest of the population. They are in fact more exposed to the rise in energy costs, in particular due to greater use of the car. On the contrary, those under 30, especially if they live in the Paris region, are underexposed by around one point.
40% of companies have supply difficulties
In the end, consumption by all households should almost stagnate between now and the end of the year after a contraction in the first quarter. The savings rate also remains at higher levels than before the health crisis, a symbol of the reluctance of households in this uncertain context.
All of this will complicate the situation for businesses. Especially since supply difficulties persist, since they concern 40% of industry players and uncertainties about international trade are limiting the recovery of exports.
Growth revised downwards
In the end, INSEE is revising the growth forecasts for the French economy downwards. It will still be just in the green over the last two quarters of the year, with a limited gain of 0.3%. So no recession at this stage. Statisticians expect annual growth of 2.3%, thanks to the gains recorded at the start of 2022.
At that time, the government anticipated annual growth of 4%. A goal now forgotten. The overheating economy that drove record inflation and forced central banks to hike rates, Chinese lockdowns and the war in Ukraine that disrupted global supply chains have been there. “Most of the vagaries of forecasting are international hazards”underlines Julien Pouget, the head of the business cycle department of INSEE.
American recession?
Two elements are particularly worth watching. First energy prices. “This global scenario would nevertheless be put to the test in the event, for example, of a complete disruption of European supplies of Russian energy products”, points out Insee. Then the situation in the United States. A more violent slowdown in the US economy in the coming months, as the Fed raises its interest rates, would also change the situation.