Finance & Economics

France’s Inflation Rate Falls

In February, the inflation rate in France showed a slowdown to a level that is the lowest since September 2021.

France’s Inflation Rate Falls

The dynamic of the growth in the cost of goods and services in the mentioned country began to show a downward tendency at a time when the European Central Bank was beginning to debate the feasibility of easing monetary policy, in which the main measure is to cut interest rates.

France is currently the second-largest economy in the eurozone. In this country, in February, a decrease in consumer prices was recorded by 3.1% compared to the indicator for the same period in 2023. In January, the corresponding figure declined by 3.2% year-on-year.

It is worth noting that currently, the slowdown in inflation is a kind of widespread tendency in the countries of the European Union. In Spain, inflation fell from 3.5% to 2.9% in February. This result slightly exceeded the preliminary expectations of experts.

The media reports that Germany will publish an inflation report this week. Berlin is also expected to report a slowdown in the growth rate of the cost of goods and services. It is worth noting that the preliminary separate relevant data for different regions of Germany coincided with the forecasts.

Analysts also expect that the average inflation rate for the 20 eurozone countries will decrease from 2.8% to 2.5%.

French Finance Minister Bruno Le Maire posted a message on his account on the social network X, formerly known as Twitter, containing a statement about victory in the fight against inflation. He also noted that Paris should approach the corresponding target of 2% by the end of the current year.

The ECB is also aiming for an inflation rate of 2%. This path of economic efforts is overcome during the period of action of such a factor as a decrease in the cost of energy carriers. The stagnation of the European economy is also currently being recorded. At the same time, ECB officials say that a rapid easing of monetary policy may provoke negative consequences. In their opinion, any acceleration in the appropriate direction creates a risk of renewed price pressure. In the context of assessing the prospects for monetary policy easing, ECB representatives are focused on monitoring the dynamic of the salary indicator. The financial regulator notes that a full set of forecasting data will be formed closer to the June interest rate meeting. ECB officials in this case choose in favor of what can be described as a waiting tactic.

Economic authorities are showing concern that a significant increase in wages is provoking inflation in the sphere of services, which in France fell from 3.2% to 3.1% in February, as evidenced by data from the Insee statistical agency. Goods inflation in the mentioned country declined to 0.3% from 0.7% in the current month.

It is worth noting that nowadays the economic confidence of the eurozone in the prospects of the sphere of services is weakening. This trend came as a surprise. A sentiment indicator published on Wednesday, February 28, by the European Commission fell to 95.4. This is the lowest figure in the last three months. A drop was recorded in the sphere of services, although expectations were focused on the positive dynamic.

It is worth noting that in the second half of 2023, the European economy approached recession amid such pressure factors as aggressive tightening of monetary policy and echoes of the shock effect provoked by the energy crisis. Moreover, in this case, the source of the negative impact was the sluggish growth of the Chinese economy, which failed to maintain the positive momentum that formed after the lifting of total quarantine due to the coronavirus and turned out to be short-term.

French President Emmanuel Macron’s plan to review the country’s long-term economic prospects and restore its deficit-ridden public finances is currently facing difficulties. The local government has worsened its economic growth forecast. Bruno Le Maire expects the corresponding figure to be 1% in 2024. It is worth noting that until February, the French economy growth was forecasted at the level of 1.4%. The deterioration in the outlook is partly because Europe is approaching stagnation.

France has also cut spending by €10 billion ($10.8 billion). This decision was made to fulfill obligations to cut the country’s budget deficit.

Bruno Le Maire, during a conversation with media representatives in February, said that the principle of responsibility provides for action at the right moment, but without brutality, which is a negative factor in terms of the possibility of maintaining control over public finances, deficits and debts.

French Budget Minister Thomas Cazenave last week assessed a high probability that the government will be forced to save more than €12 billion next year.

The worsening economic outlook is a blow for Emmanuel Macron. The French president intended to improve the financial situation of the country without using austerity measures and tightening tax policy. Mr. Macron relied on strong economic growth, but the reality, as it often happens, turned out to be less favorable.

Bruno Le Maire has declared his commitment to not raising taxes. According to him, such measures will become a very heavy burden for the people of France.

Currently, French consumers are critical of the prospects for easing price pressures. At the same time, they do not demonstrate total pessimism.

Bloomberg Economics predicts that in March, inflation in France and Spain will be fixed at 2.6% and 2.4%, respectively.

Economist Ana Andrade believes that price growth in Spain will slow down until the end of 2024, noting that this will be an uneven process, partly due to the decision of the local government to cancel the reduction in energy taxes. The expert also said that the mentioned actions of the authorities will provoke higher inflation in the country compared to the average for the eurozone.

The data contained in the Insee report shows that consumer spending in France decreased by 0.3% in January compared to December. Expenditures on manufactured goods declined by 1.5%. Economists had forecast a 0.2% decrease.

As we have reported earlier, France and Germany to Propose Measures for Economic Growth.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.