Inflation on the rise in France, driven by rising cost of food and energy

Issued on: 15/05/2022 – 11:29

Inflation is creeping up in France, as it is in many parts of the world, but economists point out that not all prices are increasing. However, consumers are feeling the pinch, because the products that are most impacted are daily necessities, like petrol and food.

“Today we have a very particular inflation, in that it is not all prices that are rising, but only certain ones,” said economist Eric Heyer, of the OFFICE at Sciences Po in Paris.

Inflation in France in April was at 4.8 percentwith the Insee statistics institute predicting it will hit 6 percent by June.

Breaking down the numbers, this inflation is being driven by a 25 percent increase in energy prices over the past year along with a rise in food prices of 6 percent, while manufactured goods and services have only risen 3 percent.

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 whether or not inflation is official or not, they just see prices going up,” he added.

Prices on the rise

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 was recovering after Covid lockdowns.

“Covid created a shock in demand,” explained Heyer.

“People were prevented from consuming [during the first lockdown in 2020], so demand went down, and prices went down. Then things reopened and demand came back. Everyone wants to consume again. So demand has exploded all over the world, with companies wanting to restock all at the same time. ”

This kind of inflation was expected and assumed to be temporary. It went on longer than expected, and it has now intersected with the war in Ukraine, which has hit energy prices in particular.

What is costing more?

  • Wheat

    Wheat prices hit a record 400 euros a ton in March, nearly twice as much as it was selling in 2020. This is largely because of the war in Ukraine, which is a major wheat producer. While France produces wheat, prices are being driven up by port closures and interrupted harvests in Ukraine.

    The increases are translating into price hikes for consumer goods like bread and biscuits, as well as pork and chicken, which are fed wheat.

  • Pasta

    The good consumer that has seen the largest price increase has been pasta. The price went up 39 percent between the end of 2020 and the end of 2021, according to the consumer protection group 60 millions of consultants. But the rise in price has nothing to do with Ukraine, as the durum wheat used in pasta comes from Canada. Poor harvests have reduced supply, driving the price up.

  • Cooking oil

    The price of oil in France has increased 7.4 percent in the last year, according to a consumer goods price report published monthly by the IRI analytics company. This is driven by shortages of sunflower seeds from Ukraine, one of the world’s largest producers.

  • Dried fruit

    Because of poor fruit harvests in France due to a cold snap in the spring of 2021, the price of dried fruits has gone up by 6.7 percent and prepared fruit deserts like purees and sorbets has increased 6.4 percent, according to IRI.

  • Chicken

    The price of frozen meat has increased 5.3 percent over the past year, according to IRI. This comes in part from the increased cost of chicken, which is costing more to feed (up 24.9 percent in March, compared to the year before, according to the Ministry for Agriculture). Plus, chicken farmers in western France have been hit with the worst case of bird fluwith 10 million birds killed since December, or 25 percent of their flock.

  • Fruits and vegetables

    The cost of fresh fruits and vegetables is on the rise, as petrol price increases impact transportation.

More inflation to come

Supply issues will continue to impact inflation in the coming months, says the Insee, which predicts rises of 5.2 percent in May and 5.4 percent in June.

Government price freezes and fuel and energy subsidies have been served to “noticeably contain” inflation, which would otherwise be at 7 percent, the institute wrote.

But predicting what will happen later is more difficult.

“The evolutions of energy prices and commodities remain largely dependent on geopolitical developments around Russia,” writes Inseepredicting that prices will stabilize around levels measured at the start of May.

Subsidising inflation away

Because inflation is not affecting prices across the board, interest rates are unlikely to go up. But if they do, Heyer warns of other problems.

“This will introduce something called ‘stagflation’: if you increase interest rates too much you will slow down economic recovery, so there will be no growth – stagnation – and inflation,” he explained, pointing to the French economy in the 1980s, which saw high unemployment.

The issue for France right now is how to compensate for people’s loss of purchasing power, as the cost of energy and daily goods continues to rise.

The government has decided to provide subsidies and not have companies shoulder the costs of increasing salaries or cutting into profits, which would affect longer-term investments.

“But it’s a cost of public financing,” warned Heyer. Will the deficit be filled with future tax increases, or reductions in public spending?

“It’s putting off the question to later,” he said. “Deficits get passed on to future generations.” We can compensate for low salaries today, but we may have to take it away tomorrow. “


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