The energy shock is beginning to feed through into French inflation. In March and April, inflation was limited to refining activities and fuel prices. It is expected to affect more sectors in the second quarter, according to the European Commission’s survey on three-month selling price expectations. In France, the pass-through is expected to mainly affect intermediate goods in Q2. However, inflationary pressures on consumer goods and services or construction are expected to remain quite moderate. These factors are consistent with our scenario of a limited acceleration in French inflation (see our scenario) and a moderate impact of the energy shock on growth (read our analysis of French growth in the first quarter).
Prospects for price increases in France: Companies in the intermediate goods sectors are more likely than others to raise their prices
In France, sector-specific business surveys indicate that the energy shock is beginning to feed through into selling prices, with prices expected to rise over the next three months (primarily for industrial inputs).
This conclusion is drawn from an analysis of data from the European Commission’s April survey. However, the proportion of companies anticipating such increases remains moderate. It is higher among companies in sectors that produce intermediate goods, particularly those that are most oil-intensive (chemicals, plastics and rubber). These inputs are used to produce consumer or investment goods, which will therefore lead to an increase in production costs. However, manufacturers in these sectors (including automotive, pharmaceuticals and agri-food) do not plan to raise their selling prices. This observation was noted by INSEE in its quarterly survey of industry: ‘other industries’ (which include intermediate goods) expect their selling prices to rise by 1.7% over the next three months, while sectors producing final consumer goods do not anticipate any increase.
For the households, a slight impact is expected via food prices.
Although the agri-food sector does not anticipate a price rise, agriculture is more exposed to energy costs, which account for a higher proportion of the goods produced. Consequently, the food retail and catering sectors (which either sell or process fresh products) expect to raise their prices (this is also linked to the rise in freight costs). An acceleration in food inflation is therefore quite likely. In the short term, this would be limited to fresh products. The food component of the consumer price index slowed in April (to 1.3% y/y) and price rises in the retail sector or the catering industry should remain limited.
Rising costs are expected to impact manufacturers in the second quarter, potentially resulting in these costs being passed on to retail prices in more sectors from the third quarter onwards.
Producer prices remained stable in March (excluding fuel). However, the prospect of higher input prices is likely to contribute to rising production costs and exert pressure on margins in the second quarter. While the price of consumer goods may increase, it is likely to remain moderate. Indeed, other business costs, particularly wages, are not expected to exert an additional pressure (with the exception of the likely increase in the minimum wage at the end of the second quarter). Businesses may also opt to reduce their margins (against a backdrop of moderate demand), which would lessen the impact of the energy price shock on core inflation.
Consequently, consumer price inflation is not expected to become widespread by the end of the second quarter (read our analyses concerning the eurozone and advanced economies as a whole). However, a more pronounced rebound in producer prices (which remain moderate outside the refining sector for now) could feed through, from the third quarter onwards, into consumer prices.
