France: inflation stalls but household consumption worries

In a hypermarket in Villeneuve-la-Garenne, in Hauts-de-Seine, March 29, 2023 (AFP/Archives/Thomas SAMSON)

Inflation marked a marked slowdown in May in France, an upturn however clouded by household consumption which accentuated its decline and bodes well for more difficult months to come for the country’s economy.

A series of indicators published on Wednesday by the National Institute of Statistics (Insee) paints a half-fig half-grape picture of the French economic situation, two days before a possible deterioration in the country’s public debt by the rating agency S&P Global.

The rise in prices, which during the past year reached unprecedented levels in nearly forty years, hitting households directly in the wallet, marks a welcome respite.

Prices continued to rise over one year in May, by 5.1%, but less sharply than in previous months (5.9% in April and 6% at the start of the year), according to INSEE. This has been a low point since April 2022.

At the origin of the inflationary shock in 2022, energy prices recorded a serious slowdown (2%), while food prices, which have become the main driver of inflation, slowed to 14, 1%, although still very high.

The slowdown can also be observed for services and manufactured goods.

– Consumption at half mast –

Inflation in France

Inflation in France (AFP/)

“This downward trend should continue in the summer and in the fall, in the wake of the general fall in the price of raw materials”, estimated the economist Sylvain Bersinger, in a note from the cabinet Asterès.

According to the Governor of the Banque de France, François Villeroy de Galhau, it is “very likely that we have passed the peak” of inflation.

However, “inflation is still there. We are not yet talking about a reduction in prices, rather a slowdown”, warned Charlotte de Montpellier, economist at ING, interviewed by AFP.

In an attempt to stem the spiral of prices on supermarket shelves, the government is however urging the agrifood giants to reopen negotiations with distributors.

If inflation is marking time, poor household consumption figures will darken the horizon.

Consumption, which is one of the main engines of growth, accentuated its decline in April. It fell by 1%, after -0.8% in March and -0.3% in February, due to lower consumption of energy and food products.

“Normally, when there is a fall, it bounces back afterwards. It doesn’t bounce back,” notes Charlotte from Montpellier. “It’s clear: the economic outlook is darkening very clearly and very quickly,” she commented, “we will probably have to expect a weaker second quarter than the first” in terms of growth.

Between January and March, the gross domestic product (GDP) of France recorded a moderate increase of 0.2%, supported by foreign trade while domestic demand was at half mast.

– “Risks” for growth-

GDP of France

GDP of France (AFP/Valentin RAKOVSKY, Samuel BARBOSA)

“We are resisting” but “I am lucid about the risks which weigh today on our growth and on the French economy”, declared on France Inter the Minister of the Economy, Bruno Le Maire, evoking an economic environment “more difficult”, marked by the entry into recession of Germany and the persistence of the war in Ukraine.

For the whole of 2023, which should experience a sharp slowdown, he confirmed on Wednesday his anticipation of growth at 1%, more optimistic than the forecasts of the Banque de France (0.6%) or the Fonds International Monetary Fund (IMF) (0.7%).

Before the long-awaited assessment of S&P, he also reaffirmed his determination to restore public finances battered by the health and energy crises, assuring that he would be “intractable” on the reduction of deficits and on the deleveraging of France. .

The small increase in GDP in the first quarter follows sluggish growth over the last three months of 2022, revised down by 0.1 point like that of the whole of last year, to 2.5%.

Corporate investment fell back, penalized in particular by the scarcity of credit and the rise in interest rates after the aggressive monetary tightening carried out by the European Central Bank (ECB) to curb inflation and return to the target of 2 % by 2025.

© 2023 AFP

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