The Banque de France issued a reassuring message on the inflation front on Monday. According to its new forecasts, the rise in prices in France should slow down “significantly” in the second half and end the year at 3.8% over one year in data harmonized at European level (HICP). It would thus stand at 5.4% on average this year, against 6% envisaged last December, with a peak still expected in the first half.
This revision is essentially linked to the ebb in energy prices. But gradually, the decline in agricultural commodity prices should also be reflected in prices. And from the summer, food inflation, which weighs particularly heavily on households, would also decrease.
Core inflation at 4.3%
“That will not be enough”, nevertheless warned the governor of the Banque de France, François Villeroy de Galhau, on France Inter. In fact, inflation – excluding energy and food – should still stand at 4.3% at the end of the year. This affects “three quarters of our consumption on which we must be extremely vigilant, and this is where monetary policy can be effective”, he insisted.
By raising interest rates by 0.5 points last week, the European Central Bank (ECB) showed that it did not intend to relent in its fight against this so-called “underlying” inflation which affects both services than manufactured goods. The French will however have to wait before perceiving the lull. In February, the rise in the harmonized price index reached 7.3% over one year . And “month-to-month surprises are always possible”, warns the Banque de France.
On Monday, the monetary institution issued another note of optimism by raising its growth forecasts for France. It now expects a GDP increase of 0.6% this year, instead of 0.3%. “The French economy should escape recession in 2023,” assured François Villeroy de Galhau.
Even if growth is slowing down sharply, the signals remain positive: economic activity is progressing, entrepreneurs are confident and the energy threat seems to be receding. On Friday, the OECD also raised its forecast for France this year, bringing it from 0.6% to 0.7%. However, these projections reflect a degree of caution. For INSEE, the growth overhang at mid-year would already amount to 0.6%.
In the context of still high inflation, purchasing power per capita should barely hold up, according to the central bank. With disparate situations. Under these conditions, consumption, which accounts for more than half of GDP, is likely to suffer. It would only increase by 0.4%. As for household investment, in particular purchases of new homes, it should be held back by the rise in the cost of credit this year.
Currency hardening
For some economists, the rest of the year will depend on the pace at which monetary tightening continues. “Underlying inflation remains too high. Only new rate hikes will break it, “said Philippe Waechter, chief economist at Ostrum Asset Management, which also still does not rule out the “risk of a recession this year”.
“If the ECB continues its monetary tightening policy, this could change the dynamics of investment,” also warns Daniela Ordonez, France economist at Oxford Economics, who observes that “past rate increases have not yet been felt. The effects will begin to be visible in the second half of the year”.
The risk of repeated strikes to protest against the pension reform and the use of 49.3 for its adoption poses another threat to French growth. According to calculations by Allianz France, a dozen new days of strikes by this summer would be likely to cost the country 0.3 points of GDP this year.