Inflation: France Blames Expensive Energy For August’s 4.8 Per Cent Consumer Price Index Rise

INFLATION started to rise again in France this August, but experts suggested it would not compromise the expected easing on the price front over the coming months.

According to a first estimate unveiled this Thursday, August 31 by the National Institute of Statistics (INSEE), the consumer price index increased by 4.8 per cent over one year in August, a clear rebound compared to the 4.3 per cent in July.

This acceleration in inflation, the first since April, was the result of the increase in the price of petroleum products and the 10 per cent increase in the regulated electricity price on August 1.

Despite an increase in wages, the rise in prices slowed down in services manufactured products as well as in food. The latter continued to record a double-digit surge, increasing by 11.1 per cent over a year in August, compared to 12.7 per cent in July.

The rise in inflation is only temporary

Sylvain Bersinger, chief economist of the Asterès firm commented: ‘The deflationary trend is therefore very present and is found in all sectors of the economy, excluding energy’. Whose prices are ‘by nature erratic’ he added.

‘This increase in inflation over one month should be momentary, it should continue to decline in the autumn and winter’, Bersinger detailed in a statement.

In particular, he cited: ‘The overall drop in the price of gas (despite a slight rebound in the summer) and the fall in inflation on production prices.

Charlotte de Montpellier, an economist at ING interviewed by AFP, explained that even if energy prices continued to move in the wrong direction: ‘An inflation peak like the one we experienced last year is unlikely’.

A gradual lull in prices is still expected over the coming months, even if inflation continues to weigh on household consumption, the traditional driver of French growth, which is now idling. This contracted by 0.5 per cent in the second quarter, due to a marked drop of 2.8 per cent in food.

Pressure on food distributors

In an effort to renegotiate lower shelf prices, the government put pressure once again this week on distributors and food manufacturers to renegotiate due to the current situation.

According to the initial estimate confirmed by Insee today, in the second quarter, foreign trade was the main contributor to the 0.5 per cent rise in France’s gross domestic product (GDP).

This rebound in French economic activity between April and June followed sluggish GDP growth of 0 per cent in the first quarter, which was revised downwards by 0.1 points.

Business investment fell slightly by 0.1 per cent in the second quarter. Against a backdrop of interest-rate hikes forced through by the European Central Bank (ECB) to combat inflation, it was dragged down by the construction sector.

A decline in household consumption

While household purchasing power increased slightly over the period – due to lower taxes and higher social benefits – the savings rate rose to 18.8 per cent, compared with 18.2 per cent in the previous quarter, which is a bad sign for consumption.

Household consumption of consumer goods in July alone rose by 0.3 per cent month-on-month. It was boosted by a 1.6 per cent increase in purchases of manufactured goods, notably household appliances, computers and furniture. Food consumption however was down by 0.9 per cent.

‘In July, there is generally a rebound in the consumption of manufactured goods due to sales, which encourages a resumption of consumption in this area’, commented Charlotte de Montpellier.

She pointed out: ‘The fact that food consumption is falling again clearly shows that we are not in a situation where consumption can once again become, in the coming months, an engine for economic growth in France’, as reported by nouvelobs.com.