Inflation on the rise in France, driven by rising food and energy costs
Inflation is rising in France, as in many parts of the world, but economists point out that not all prices are rising. However, consumers are feeling the effects, as the products most impacted are basic necessities, such as gasoline and food.
“Today we have very particular inflation, in the sense that not all prices are rising, but only some,” said economist Eric Heyer, of the OFCE at Sciences Po Paris.
Inflation in France in April was 4.8%, with the statistics institute Insee predicting that it will reach 6% by June.
Breaking down the numbers, this inflation is due to a 25% increase in energy prices over the past year as well as a 6% rise in food prices, while manufactured goods and services only increased by 3%.
For central bank economists, increases in energy and food prices are not enough to justify raising interest rates, Heyer told RFI.
“The average consumer doesn’t care if inflation is official or not, they just see prices going up,” he added.
The war in Ukraine has contributed to inflation, but prices were already on the rise even before Russia invaded in February 2022, as the French economy recovered from Covid shutdowns.
“Covid has created a shock in demand,” Heyer explained.
“People have been prevented from consuming [during the first lockdown in 2020], so demand went down and prices went down. Then things reopened and demand returned. Everyone wants to consume again. Demand has therefore exploded all over the world, with companies wanting to restock everything at once. »
This type of inflation was planned and assumed to be temporary. It lasted longer than expected and has now intersected with the war in Ukraine, which notably affected energy prices.
What costs the most?
Wheat prices reached a record 400 euros per ton in March, almost double what it sold for in 2020. This is largely due to the war in Ukraine, which is a major producer of wheat. corn. As France produces wheat, prices are being driven up by port closures and interrupted harvests in Ukraine.
The increases translate into higher prices for consumer goods like bread and cookies, as well as pork and chicken, which are wheat-fed.
The consumer good that saw the biggest price increase was pasta. The price rose 39% between the end of 2020 and the end of 2021, according to consumer protection group 60 Million Consumers. But the price hike has nothing to do with Ukraine, as the durum wheat used in the pasta comes from Canada. Poor harvests reduced supply, pushing up prices.
- Cooking oil
The price of oil in France has increased by 7.4% over the past year, according to a report on consumer goods prices published monthly by the analysis firm IRI. This is due to shortages of sunflower seeds from Ukraine, one of the world’s largest producers.
- Dried fruit
Due to poor fruit harvests in France due to a cold spell in spring 2021, the price of dried fruits increased by 6.7% and prepared fruit desserts such as purees and sorbets increased by 6.4% , according to the IRI.
The price of frozen meat has risen 5.3% over the past year, according to IRI. This is partly due to the rising cost of chicken, which costs more to feed (up 24.9% in March from a year earlier, according to the Ministry of Agriculture). In addition, chicken farmers in western France have been hit by the worst case of bird flu, with 10 million birds killed since December, or 25% of their flocks.
- Fruits and vegetables
The cost of fresh fruits and vegetables is on the rise as rising gas prices impact transportation.
More inflation to come
Supply problems will continue to impact inflation in the coming months, indicates INSEE, which forecasts increases of 5.2% in May and 5.4% in June.
The government’s price freeze and fuel and energy subsidies have served to “significantly contain” inflation, which would otherwise be 7%, the institute wrote.
But predicting what will happen later is more difficult.
“Changes in energy and commodity prices remain largely dependent on geopolitical developments around Russia,” writes INSEE, predicting that prices will stabilize around the levels measured in early May.
Since inflation does not affect prices at all levels, interest rates are unlikely to rise. But if they do, Heyer warns of further problems.
“It will introduce something called ‘stagflation’: if you raise interest rates too much, you will slow down the economic recovery, so there will be no growth – no stagnation – and no inflation,” he said. he explained, referring to the French economy of the 1980s, which experienced a high unemployment rate.
The challenge for France today is how to compensate for the loss of purchasing power of citizens while the cost of energy and everyday consumer goods continues to rise.
The government decided to provide subsidies and not pass the costs of increased wages or reduced profits on to companies, which would affect longer-term investments.
“But it’s a cost of public funding,” Heyer warned. Will the shortfall be filled by future tax increases or by cuts in public spending?
“It’s putting the question off until later,” he said. “Deficits are passed on to future generations. “We can make up for low wages today, but we may have to cut them tomorrow.”