The confirmed decline in inflation continues to threaten the LEP’s performance. Over one year, consumer prices increased by 2.3% in March, after +3% in February. As a result, the rate of the popular savings account should fall again next August. In what proportions?
It is an indicator that we now carefully examine every month. INSEE has just revealed its first estimate of inflation for March this Friday. Over one year, consumer prices are expected to increase by 2.3% after +3% in February. “This drop in inflation would be due to the slowdown over one year in the prices of food (+1.7% in March after +3.6% in February), services, tobacco, energy and manufactured products,” indicates INSEE.
Figures which validate the scenario drawn up by INSEE in its latest quarterly economic report, with its forecasts for price developments over the coming months. It confirms the trend of an erosion of inflation and consequently a almost certain drop in the rate of the Popular Savings Account (LEP), whose role is precisely to protect the savings of the French from inflation.
For the first time in more than two years (January 2022), monthly inflation in March is preparing to fall below 3% again. That’s the good news.
This slowdown in inflation therefore has consequences on the remuneration of the Popular Savings Account (LEP), accessible under conditions of resources to approximately one in two French households.
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LEP: a rate of 2.5% to keep up with inflation? No…
What will happen during the next update of its rate, scheduled for August 1? The news this time is less good: the decline is almost certain and the yield could even be halved.
If the INSEE projections published this Thursday March 14 are confirmed, average inflation for the first half of the year should be around 2.5%. However, alignment on this figure is one of the scenarios provided for by the formula for calculating the LEP rate. In this scenario, the latter therefore risks going from the current 5% to 2.5% overnight.
Towards a rate of 3.70% in August?
Don’t worry, that won’t happen. Because there is a guardrail. Be careful, this is a bit technical: the LEP rate cannot fall below the Livret rate increased by half a point. However, this figure is likely to be higher than 2.5%.
Here’s how it’s going to happen. Around July 15, when updating the yield on regulated savings, the Banque de France will calculate the “technical” rate for Livret A, the one resulting from its regulatory calculation formula. It will not be a question of modifying the Livret A rate (3% currently), frozen until January 2025. The challenge will be to verify whether this figure, increased by half a point, is higher than inflation. half-yearly, and therefore more advantageous for the saver.
We can already assure that this will be the case. Given the inflation outlook, and the absence of a short-term decline in interbank rates (the other variable used in the formula), the “technical” rate of the LEP should be around 3.80%. Down, therefore, but not in the same proportions as inflation. Clearly, the real yield of the LEP, adjusted for inflation, will remain very advantageous.
* monthly inflation excluding tobacco
In red: real yield of the LEP negative compared to inflation
In green: positive real return on LEP compared to inflation.
© MoneyVox
The Banque de France will still have to make a choice: apply this rate of 3.80% from the calculation formula, as is the rule; or propose to the Ministry of the Economy to deviate from this rule to set the rate as you wish. In this case, Bercy could, for example, choose to slow down the fall – this is what it did in February – and set the LEP rate at 4%. Response in 5 months!