Inflation: the rise in energy prices, a new risk factor

2023-08-10 07:15:11

For the fourth month in a row, inflation slowed in France in July. As economists had been predicting since the beginning of the year, the rise in prices seems to have peaked in the first half of the year. And most expect the ebb to continue.

However, the fear of a bad surprise is creeping into the minds of some of them, given the recent evolution of the oil markets. The price of Brent, for example, has appreciated by 16% since the beginning of July, going from 73.9 dollars to 85.79 dollars on August 9.

Impact at the pump

Already, the repercussions on prices at the pump are significant for French motorists, affected in the wallet in the middle of vacation. The liter of diesel, which cost 1.67 euros per liter at the beginning of July, had thus risen to 1.81 euros on average on August 4.

After the government’s surprise announcement of a 10% increase in regulated electricity prices from August 1, household energy bills are therefore threatening to increase seriously. At the risk of causing a burst of inflation. “The possibility of an upward shock on the energy markets is the greatest factor of uncertainty”, observes Gilbert Cette, professor at Neoma Business School.

An impact on inflation estimated at 0.5 points

Energy (gas, oil, electricity) weighs 8.6% in the consumer price index calculated by INSEE. According to Maxime Darmet, France economist at Allianz Trade, “the rise in electricity prices, combined with higher oil and fuel prices, should add 0.5 point to overall inflation compared to July”. “The contribution of energy to the consumer price index, which had turned negative in June and July, will turn positive again,” he adds.

And there is little chance that the executive will resuscitate the tariff shields put in place to counter the surge in gas and electricity prices. “Budgetary constraints will prevent the deployment of measures as massive as in 2022 to cushion the effect of the inflationary shock on household purchasing power,” warns Gilbert Cette.

Salary discrepancies

Another factor arouses the caution of economists: the evolution of remuneration. The basic monthly salary (excluding bonuses) measured by the Ministry of Labor increased by 4.6% over one year at the end of June, against 4.4% for prices.

Experts have different views on the sequel. While the Banque de France predicts that the peak of wage increases will be reached in the second half of the year, others believe that it will rather be in 2024 and that this will push companies to continue raising prices.

“Wage increases will on average approach, then exceed, inflation until 2024, except in the event of a new brutal inflationary shock linked to an increase in the price of oil”, estimates Gilbert Cette, who puts forward two reasons: on the one hand on the other hand, inflation has led to a narrowing of the range of salaries, which could stir up requests for revaluations for certain rungs of the salary scale; on the other hand, the minima in many branches remain lower than the SMIC and should be pushed further upwards.

“Because of the acceleration of wages, inflation in services should increase”, warns Maxime Darmet. However, the Allianz Trade expert believes that “the scenario of a fall in inflation over the second half of the year remains largely validated”. According to him, “the reflux could even be faster than expected”.