It is THE star of the moment. On television, in the newspapers or in front of the coffee machine, inflation invites itself into all conversations. But in fact, few French people really know what it corresponds to and how it is measured.
The National Institute of Statistics and Economic Studies (INSEE) has just published its latest figures on inflation. And it’s not pretty to see. In May 2022, the price spike accelerated, with an increase of 5.2% over 1 year, its highest level since September 1985. But what does this figure really mean?
How is inflation calculated?
In France, when we talk about inflation, we often unknowingly refer to theconsumer price index (CPI). It is the main instrument for measuring inflation. It is calculated every month by INSEE, and the results are published in Official newspaper (OJ). This index is essential, since in addition to giving you an idea of the evolution of prices over time, it serves as a basis for calculating the amount of the SMIC, retirement pensions, as well as the rate of the Livret A.
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INSEE obtains it by comparing each month the price of a basket of goods and services. When the total price of the basket increases, it is called inflation. The content of this basket is updated once a year to best reflect household consumption habits. In detail, the statistics office bases itself on the distribution of consumption expenditure by item valued within the framework of the national accounts, then weights each product in proportion to its weight in household consumption expenditure. Result: in 2021, food products represent 17.5% of the basket. Next come health expenditure (9%), furnishings (6.4%), and restore (6.3%).
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Over 1700 products tracked
From one month to the next, INSEE scrutinizes the prices of the same products, in order to prevent price trends from being skewed by quality differences. And if certain products disappear during the year, such as when a new generation of telephone replaces the previous one, Insee correct the prices accordingly to neutralize the difference in quality.
In total, more than 1700 products are followed. And for good reason: according to European regulations, as soon as a product represents more than 1/1000th of household consumption, it must be included in the CPI basket.
To monitor the price variations of selected products, INSEE relies on several data sources. In detail, 160000 prizes are recorded each month by INSEE investigators in 30,000 points of sale and 500000 prizes are collected on the internet, manually or using robots. Finally, since January 2020, 80million prizes are added using department store cash register data.
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The limits of inflation
However, when checking out, the French often have the impression that inflation is measured by the CPI misrepresents their reality. And that’s quite normal, since the CPI is an average. The products and services studied reflect the expenditure of an average French household, whose consumption habits may differ significantly from yours.
All other things being equal, a city dweller who does not have a personal vehicle and travels only using public transport has, for example, experienced an inflation over 1 year of 3.7% in April 2022, against 4.8% for a motorist. For calculate your own indexyou can modify the weighting of your various expenditure items on the inflation simulator from INSEE.
Finally, be careful not to confuse inflation with the purchasing power. If the first directly impacts the second, it is only one of its many components. Thus, the CPI focuses on the evolution of prices. But it does not take into account variations in real estate prices (excluding rents), taxation or the rate of savings products. So many elements that have a direct impact on your purchasing power.
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