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The success of the French President in using public spending to tame inflation is reaching its limits due to a ballooning debt burden and the loss of a governing majority.
France had the lowest inflation in the euro area after receiving 25 billion euros in pre- election handouts. Consumers were supposed to be protected from rising oil and gas prices.
French inflation is not as high as in other euro countries.
The Eurostat is the source of this information.
As prices spread beyond energy to encompass food, goods and services, it's hard to offset them. Bruno Le Maire describes the fiscal power of the government as being at an alert level.
The euro area's second-largest economy would make it more difficult for the European Central Bank to raise interest rates. An intensifying cost-of-living squeeze would further cloud France's economic outlook, and threaten to revive grievances that sparked unrest in the first term with the so-called yellow vest protests.
Consumer confidence in France has dropped to a nine-year low. The government cut its growth forecast last week.
The tariffs will be extended, consumer spending power will be protected and the budget will be rewritten in the coming months. He lost his parliamentary majority in elections last month. None of the coalition proposals have been accepted by the opposition.
Charlotte de Montpellier of ING said that the question was whether they would be able to pass a law that would have a big impact. Politics isn't always what we think, but the incentive would be strong.
In see says that French inflation will be driven by services.
The source is insee.
Measures won't be as effective to contain inflation this time around if he succeeds in getting backing for new laws. While caps on electricity and gas costs kept prices down, the focus of the next dose of support will be putting money in consumers' pockets, including an increase in state pensions.
Montpellier said that the measures are unlikely to push inflation down. When inflation will start to go down, they could delay it.
The French government expects the rate of inflation to rise in the coming months.
Insee sees it stabilizing between 6.5% and 7% from September to the end of the year as services take over from energy as the main driver of higher prices.
“Measures introduced by the government to cap household gas and electricity bills are the primary reason why French inflation has remained well below that recorded in the rest of the euro area. But as some of the sharp energy price gains seen in neighboring countries over the end of 2021 and the start of 2022 start falling out of the annual comparison, this will change. Even if the price caps remain in place, we expect France’s inflation to overtake the euro-area average from the start of next year.”
--Maeva Cousin, senior economist
Consumers in France are taking a smaller hit.
This is a source of economics.
Jesus Castillo of Natixis said that one element that may help keep prices in check is the relative financial strength of firms. Businesses can afford to raise salaries if they take a hit on margins.
Firms are generally healthy and can absorb shocks.
The French government has begun to lean on companies to take some of the burden, and will look at food supply chains to see if they have excessive margins.
After consultation with the finance ministry, the group will support efforts to protect households by cutting prices for some French customers. Travelers can get a summer discount on fuel purchases at TotalEnergies' highway service stations.
Le Maire said last week that the burden of inflation should be shared. The state has put a lot on the table.
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