Increases in the price of core goods and services in France are expected to accelerate in the next three months, heaping more pressure on the government and the European Central Bank as they gauge how to rein in record inflation.
(Bloomberg) — Increases in the price of core goods and services in France are expected to accelerate in the next three months, heaping more pressure on the government and the European Central Bank as they gauge how to rein in record inflation.
The country’s statistics agency, Insee, revised up its forecasts for underlying inflation through the first half of the year, even as headline readings should decline with the easing of energy costs.
It now expects the index, which excludes volatile items such as fresh food and energy, to reach 6.4% in June, instead of the 5.7% it forecast only a month ago.
The ECB is increasingly focused on such price measures as it assesses the appropriate pace and magnitude of interest rate increases.
Policymakers have said they intend to deliver another 50 basis-point hike on Thursday, but are divided on to what degree they should commit to further tightening, with the market volatility that has followed the collapse of Silicon Valley Bank adding to uncertainty.
The French government is also struggling to adapt to the changing drivers of inflation. While the state was able to intervene massively to contain energy costs, it has less control over food and services. Last week, the Finance Ministry said it reached a deal for retailers to take a hit on their margins, but that depends on them voluntarily cutting prices.
In its report, Insee said more than one-third of French consumers have changed their spending habits because of inflation. The trend is particularly marked for food and energy, and among younger and less well-off households.
Still, consumer spending should resume growth in the first half of the year after a contraction in the final quarter of 2022, according to the agency’s estimates. Gross domestic product will continue to grow modestly with supply constraints gradually easing, business investment holding up, and aircraft deliveries supporting exports, its forecasts show.
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