France: Inflation should stabilize in the fall between 6.5 and 7%

(Boursier.com) — Inflation should continue to rise in France. In a note on the economy, the National Institute of Statistics explains that after the annual inflation rate of 5.2% recorded in May, a level not seen since 1985, headline inflation would initially continue to increase this summer, to stabilize in the fall between 6.5 and 7% over one year (and around 4.5% for core inflation). As an annual average, inflation should amount to +5.5% in 2022 (after +1.6% in 2021). In its forecasts, INSEE is basing itself on maintaining the tariff shield on regulated gas and electricity sales tariffs until the end of the year, a gradual reduction in the rebate at the pump between September and December and a price of Brent at 111 euros per barrel.

Services are expected to become the main driver of inflation in the eurozone’s second-largest economy, at the expense of energy prices which surged after Russia’s invasion of Ukraine. The sector is key for price dynamics in France because it accounts for almost half of household spending and is sensitive to certain mechanisms, including the indexation of the minimum wage. “There is a loop, an interaction, especially in services,” says Julien Pouget, economist at INSEE. “An uncontrollable spiral has not started and this is not our central hypothesis but it is one to watch.”

In terms of activity, quarterly growth should be moderate, at +0.2% in the second quarter, then +0.3% in the third and fourth quarters. “This rate of growth would be below what one would have expected in a recovery phase, but not very far from the average rate recorded during the decade before the health crisis. At the end of 2022, French GDP would be at 1.2% above its level at the end of 2019. Annual growth would be 2.3% in 2022 (after +6.8% in 2021″, specifies INSEE.