The process of disinflation continues in Europe. In March, inflation in the euro zone was 2.4%, compared to 2.6% the previous month, according to data published Wednesday April 3 by Eurostat. This is the lowest level of price increases since July 2021 (tied with November 2023).
The phenomenon affects almost all European countries. Inflation in March was 2.4% in France, 2.3% in Germany, 1.3% in Italy, 3.2% in Spain. The decline in energy prices, which has been in full force for a year, partly explains this slowdown. More recently, food prices have stopped soaring: for unprocessed foods, they are even down slightly for the first time, by 0.4%. As for so-called “underlying” inflation (excluding energy and food, which are more volatile), it has fallen below 3% for the first time in more than two years, at 2.9%.
The process of disinflation does of course not mean that prices are falling (they have gained a total of 15% in the euro zone since the summer of 2021), but simply that their progression has now stabilized. For the European Central Bank (ECB), whose objective is to maintain inflation at 2%, this is good news. “These data point to inflation which will be very close to the 2% objective in the second half of the year”, estimates Andrew Kenningham of Capital Economics. A first cut in interest rates at the ECB meeting in June now seems to be the consensus.
Companies in difficulty
In addition to energy and food, one of the explanations for the phenomenon of disinflation comes from the decline in corporate profits. “There are still super profits in the energy sector, but elsewhere, the surge in margins is over”, notes Eric Dor, director of economic studies at Ieseg, a business school. He reviewed the margins of French companies, as they appear in the state accounts kept by the National Institute of Statistics and Economic Studies. In the fourth quarter of 2023, these were down by 0.24% compared to the fourth quarter of 2022 for manufacturing companies, by 2.57% for agriculture, by almost 5% for transport, or even by 0. 85% for household services.
Week after week, the difficulties facing businesses are highlighted by the news. Kingfisher, the company that owns Castorama, has just published a decline in its profit margin from 7.1% in 2022 to 5.8% in 2023. It has announced a major cost reduction plan. The luxury group Kering fell sharply on the stock market after the poor results of its Gucci brand, whose sales fell by 20% in the first quarter.
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