EcoTV Week

France: Inflation spike? Not yet


Inflation has accelerated markedly during 2022. After a limited disinflation during the summer, driven by lower gasoline prices, the inflation rate has reached a new peak in October. Core inflation is accelerating, and expected food and energy price increases are suggesting even higher inflation during Q12023, before a gradual disinflation. In parallel, as wage growth should accelerate moderately, household purchasing power should exhibit a modest increase in 2023.


French GDP has grown by 0.2% q/q during Q3, a deteriorating performance compared to Q2 figure, where GDP growth has reached 0.5% q/q and despite a partial recovery of household purchasing power (+1% q/q in Q3 according to our estimates) partially explained by a limited disinflation from 5.8% y/y in June to 5.6% in September.

This lower inflation has proved only temporary as the October figure was published by Insee at 6.2% y/y. This marked acceleration was driven primarily by higher food prices which contributed to about one third of the overall figure. Food excluding fresh items exhibited a 11% y/y increase, about twice the former record increase observed in 2008. In parallel, energy inflation remains high, as brent prices increased and energy imports increased after strikes in French refineries.

These two inflation drivers should even reinforce during the next months. Food inflation is explained by several input scarcities in the agrifood sector, which in turns weighs on production and reverberates on low inventories. Energy inflation should accelerate further after the increase of regulated gas and electricity prices in early 2023, when the discount on gasoline prices should be fully unwound.

All these arguments are suggesting that inflation is here to stay and that disinflation from Q22023 should remain gradual. As a matter of fact, we estimate that core inflation as calculated by Insee should have reached a new high of 4.9% y/y in October, driven by a significant accelerating of manufacturing prices (4.2% y/y in October) and food prices excluding fresh foods. This upward trend should continue as the last Insee survey in the retail sector shows that the proportion of retailers expecting to increase their selling prices has reached a new high.

In parallel, wages did not grow at the same pace, but this pace should increase moderately. The minimum wage is indexed to inflation, but the lion's share of wages are not. On average, wages should have grown by 3.6% in 2022 and should increase by 4% in 2023 according to our estimates, as a result of ongoing wage bargaining processes. This positive dynamic should contribute to a small increase of households’ purchasing power in 2023 (+0.3%) despite a still strong inflation rate and our expectation of slight erosion of employment.