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The Inflation Situation: France

French inflation is decreasing, but not all experts think that the nation necessarily has things under control. In September, French inflation slowed for the second straight month, which stands in stark contrast to neighbours like Hungary, Spain, and Germany. The main reason for the slowdown has to do with decelerated price increases for energy and services. France’s national statistics agency stated that annual inflation fell to 6.2% in September, down from a peak of 6.8% in July and 6.6% in August. This 6.2% figure was .5% less than expected, taking many by surprise. Despite the good news, some say it is far too early to celebrate because France’s increased spending to protect average households will cause more pain down the line.

Eurozone inflation overall exceeded 10% in September, a record. In response, experts are predicting a massive interest rate hike from the European Central Bank later this month. The drivers of this inflation come from surging energy and food prices. French inflation cooled mostly because energy price inflation was not too high, a mere 17.9%, which is the lowest figure in the last year. This is in part due to the French government’s decision to cap power and gas prices and provide car fuel subsidies. Aside from key goods, the price for services also cooled off, as the peak tourist season ended in September. Despite the relatively good news about inflation, consumer confidence is not so strong. Morale is weak, and as inflation rages on, concerns about the economy continue to come to the fore.

Shoulda, woulda, coulda

Food is expected to be a big inflation driver in the months to come. Although just 5.8% in September, food prices are expected to increase by 12% by the end of the year. Some have criticised the French government for doing too little too late. For example, data from early 2021 gave plenty of warning signs about oncoming inflation. But the war in Ukraine allowed everybody to blame Russia as the cause of inflation. While certainly a contributing factor, neither the French Central Bank nor the European Central Bank chose to stop in and raise interest rates proactively. Instead, they waited for a very long time to start using the main tool at their disposal, after which much of the inflation damage – and a self-perpetuating vicious cycle – was already in motion. For that reason, France’s GDP growth is expected to fall from 2.7% this year down to less than 1% in 2023. While France has been able to keep much of inflation at bay, prognosticators fear that they are just kicking the can down the road, with consequences emerging in the winter of 2022-2023.