France: inflation stalls but household consumption worries

Inflation marked a marked slowdown in May in France, an upturn however clouded by household consumption which accentuated its decline and bodes well for more difficult months to come for the country’s economy.

A series of indicators published on Wednesday by the National Institute of Statistics (Insee) paints a half-fig half-grape picture of the French economic situation, two days before a possible deterioration in the country’s public debt by the rating agency S&P Global.

The rise in prices, which has reached unprecedented levels in nearly forty years, hitting households directly in the wallet, marks a welcome respite.

Prices continued to rise over one year in May, by 5.1%, but less sharply than in previous months (5.9% in April and 6% at the start of the year), according to INSEE. This has been a low point since April 2022.

At the origin of the inflationary shock in 2022, energy prices recorded a serious slowdown (2%), while food prices, which have become the main driver of inflation, slowed to 14, 1%, although still very high.

The slowdown can also be observed for services and manufactured goods.

– Consumption at half mast –

“This downward trend should continue in the summer and in the fall, in the wake of the general fall in the price of raw materials”, estimated the economist Sylvain Bersinger, in a note from the cabinet Asterès.

However, “inflation is still there. We are not yet talking about a reduction in prices, rather a slowdown”, warned Charlotte de Montpellier, economist at ING, interviewed by AFP.

According to the Governor of the Banque de France, François Villeroy de Galhau, it is “very likely that we have passed the peak” of inflation.

In an attempt to stem the spiral of prices on supermarket shelves, the government is however urging the agrifood giants to reopen negotiations with distributors.

If inflation is marking time, poor household consumption figures will darken the horizon.

Consumption, which is one of the main engines of growth, accentuated its decline in April, falling by 1%, after -0.8% in March and -0.3% in February, due to a lower energy and food consumption.

“Normally, when there is a fall, it bounces back afterwards. It doesn’t bounce back,” notes Charlotte from Montpellier. “It’s clear: the economic outlook is darkening very clearly and very quickly,” she commented, “we will probably have to expect a weaker second quarter than the first” in terms of growth.

– “Intractable” –

Between January and March, the gross domestic product (GDP) of France recorded a moderate increase of 0.2%, supported by foreign trade while domestic demand was at half mast, according to INSEE.

This development follows sluggish growth in the fourth quarter (0%), revised down by 0.1 point like that of 2022 as a whole, to 2.5%.

Business investment fell back, penalized in particular by the scarcity of credit and the rise in interest rates after the aggressive monetary tightening carried out by the European Central Bank (ECB) to curb inflation and return to the target of 2 % by 2025.

The whole of 2023 should be marked by a sharp slowdown.

The Minister of the Economy Bruno Le Maire confirmed on Wednesday his anticipation of growth at 1%, more optimistic than the forecasts of the Banque de France (0.6%) or the International Monetary Fund (IMF) (0.7 %).

“We have economic results which are solid, with growth which remained at 0.2% in the first quarter where our German neighbor is in recession”, he argued on France Inter.

Before the long-awaited assessment of S&P, he also reaffirmed his determination to restore public finances battered by the health and energy crises, assuring that he would be “intractable” on the reduction of deficits and on the deleveraging of France. .