PARIS (Agefi-Dow Jones)–The Governor of the Banque de France, François Villeroy de Galhau, on Thursday called on the executive to favor supply-side policies, and not those centered on demand, in order to reduce inflation. .
“Past policies to support demand, monetary and budgetary, are less relevant today since they would maintain inflation rather than reduce it”, warns the central banker in his annual letter sent to the President of the Republic, Emmanuel Macron, as well as to the presidents of the National Assembly and the Senate, Yaël Braun-Pivet and Gérard Larcher.
The war in Ukraine, the current cost of which the Banque de France estimates at more than 30 billion euros, does not “in any way” justify a new “whatever the cost” as during the health crisis, also claims the governor. On the contrary, François Villeroy de Galhau urges France to set itself “an ambitious and credible debt reduction strategy”.
To reduce inflation, François Villeroy de Galhau calls for the promotion of “long-term” supply policies. These measures make it possible to control the rise in prices by “reducing vulnerability to external shocks, through greater energy diversification for example, or to the lack of internal supply, in particular by increasing the skills available on the labor market. “, he explains. These policies are also “indispensable” to strengthen potential growth, further argues the senior official.
With this in mind, François Villeroy de Galhau considers that France must take up a specific challenge: to increase the supply of available labor as well as its qualification. The Governor of the Banque de France believes that Europe, for its part, must succeed in two “transformations”, those of ecology and digital technology.
The ECB will not necessarily go as far as the Fed
Inflation has accelerated in France in recent months, due in particular to tensions in supply chains and commodity prices. In June, the harmonized consumer price index (HICP) rose by 6.5% over one year, according to the National Institute of Statistics and Economic Studies (Insee). On an annual average, the Banque de France anticipates an increase of 5.6% in 2022 then 3.4% in 2023 and 1.9% in 2024.
François Villeroy de Galhau ensures that returning to European and French inflation around 2% is not only “a forecast” but “our firm commitment in the medium term”.
“The Eurosystem [qui regroupe la Banque centrale européenne (BCE) et les banques centrales nationales de la zone euro, NDLR] will normalize its monetary policy as much as necessary,” he wrote.
“First by emerging from the exceptional measures taken when there was, in particular at the start of the Covid crisis, a danger of deflation […] then by continuing to raise its rates to reach a ‘neutral’ level in subsequent quarters, between 1% and 2% in the short term”, develops François Villeroy de Galhau. “Finally, by not going beyond this normalization, towards a possible tightening only if the inflation data require it” he continues.
“In other words, the European Central Bank like the American Federal Reserve or other central banks are following the same direction, but the European situation does not oblige the ECB to necessarily go so fast or so far”, concludes the Governor of the Bank of France.
-Julien Marion, Agefi-Dow Jones; +33 (0)1 41 27 47 94; [email protected] ed: FXS
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July 07, 2022 07:04 ET (11:04 GMT)