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JOHN LICHFIELD

OPINION: An inflation ‘tsunami’ is about to hit France

The rise in the cost of living in France is among the lowest in Europe - but that does not mean that it's not already causing pain to consumers, and much worse is set to come in January, warns John Lichfield.

OPINION: An inflation 'tsunami' is about to hit France
Photo by Christophe SIMON / AFP

There are lies, damned lies and official inflation figures. According to the official index, the cost of living in France has risen by 6.2 percent in the last year. If you limit that to food prices alone, the figure rises to 10 percent.

No more? It depends how you count and what you count.

A typical “supermarket basket” of 38 of the most used household items – fish-fingers, shampoo, crisps – cost 16.5 percent more at the end of September than 12 months earlier (according to a survey by Le Monde) .

Cooking oil, according to a government survey, is 60 percent higher than it was a year ago; frozen fruit is up by 40.6 percent, margarine 23.5 percent and flour by 23.5 percent. Terrible news if your favourite “French” dessert is “un crumble”.

The official inflation figure of 6.2 percent (the highest since 1985) may be misleading but it is not wrong. It is held down by rents, domestic energy prices and clothes, which have not risen as much as food.

The French government has spent €150 billion – 5 percent of GDP – in the last year to keep down the cost of electricity, gas, petrol and diesel. This mostly explains why inflation in France is so much lower than other countries. Prices are rising at 11.1 percent in the UK, 10.9 percent in Germany, 12 percent in Belgium and at an 8.5 percent average across the European Union.

READ ALSO How France is keeping its inflation (relatively) low

However, France faces a double shock or delayed reckoning in the New Year – what one senior government official describes as a “waterfall” and what Michel-Edouard Leclerc, head of the E. Leclerc supermarket chain, calls a “tsunami”.

The state subsidies on petrol, gas and electricity cannot be afforded indefinitely and are being wound down. Petrol and diesel rebates have already been reduced and will vanish from January 1st. Instead there will be targeted subsidies for poorer families and those dependant on cars for work.

The big price-totems outside filling stations and in supermarket car-parks – a better guide to the gloomy provincial mood than opinion polls – are already showing petrol and diesel at over €2 a litre.

The government’s 2022 freeze on gas prices and the 4 percent cap on electricity bills for households and small businesses will also disappear at the end of next month.

From January, energy price rises will be limited to 15 percent – still much lower than in other countries.  Unfortunately for the government, French people do not compare their power bills with those of “other countries”.

Food price inflation began with the post-Covid boom and was worsened by hot, dry summers and the Ukraine war. It has been lower in France than in other places. A government report this month found that – far from price gouging – the French farming, food and retail industries have been cutting profit margins to prevent consumer prices from rising even higher.

Unfortunately for the government, French shoppers do not (except a very few) look at supermarket prices elsewhere. Faced with a €120 shopping bill that once cost less than less €100, they tend not to say: “Thank God, we are not British or Belgian or German”.

This is what the senior official means when he warns that the country is paddling towards a “January waterfall”. The government had hoped that market prices for petrol and diesel would have fallen by now – compensating for the loss or reduction of state subsidies. They have not.

Electricity and gas bills will shoot up by 15 percent in the New Year – just as France faces the prospect of selective power cuts. Repairs to its ailing fleet of nuclear power plants remain behind schedule.

EXPLAINED What your French energy bills will look like in 2023

Leclerc also warned on Monday that a “tsunami” of new food price rises lies ahead. Inflation was being “normalised”, he said – in other words producers were unwilling to cut their margins indefinitely. A spiral of higher costs and higher prices was being built into the system.

“Felt” or everyday inflation is mostly food inflation. The poorer the family or the individual, the bigger the share of income spent on food. The government has also tried to soften the impact of high prices on the poor. Apart from the energy subsidies, it sent a €100 “cheque” to all households on low or modest incomes this Autumn.

Unfortunately for the government, memories are short and supermarket prices are high – €100 does not go very far when the price of flour and fish-fingers is rocketing.

When power bills explode and food price spike this winter who will thank the government for sparing France the worst of inflation in 2022?

An opinion poll this week found that 89 percent of French people were miserable about their immediate future. France, unlike other countries, does not do passive gloom for long.

Troubled waters, whether a  “waterfall” or a “tsunami”, lie ahead. 

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POLITICS

French minister: US green plan should be ‘wake-up call’ for EU industry

French Finance Minister Bruno Le Maire on Friday said Washington's $430 billion plan to spur climate-friendly technologies in the United States must be seen as a wake-up call for Europe.

French minister: US green plan should be 'wake-up call' for EU industry

The EU “must be able to sweep in front of our own door” before worrying about the effects of the US climate plan on European industry, Le Maire told AFP in Washington, where he was part of French President Emmanuel Macron’s US state visit.

Even though the EU has already “changed its approach” on promoting green industry, the US climate plan must be seen as a “wake-up call” in the European Union, he added.

Le Maire’s comments came as EU countries have poured criticism on Washington’s landmark Inflation Reduction Act (IRA), seeing it as anti-competitive and a threat to European jobs, especially in the energy and auto sectors.

Subsidies for green energy

The act, designed to accelerate the US transition to a low-carbon economy, contains around $370 billion in subsidies for green energy as well as tax cuts for US-made electric cars and batteries.

Macron on Wednesday slammed the plan’s “Made in USA” provisions as “super aggressive” for European businesses.

But at a joint press conference with Macron, Biden said that he and the French leader had agreed to “discuss practical steps to coordinate and align our approaches”, though he said he would not apologize for the US plan.

Biden added the IRA was never intended to disadvantage any US allies.

Threats of retaliatory measures

Last month, EU Internal Market Commissioner Thierry Breton threatened to appeal to the World Trade Organization and consider “retaliatory measures” if the United States did not reverse its subsidies.

Le Maire also criticized the EU’s own climate spending plans, arguing that they were too cumbersome and loaded with red tape.

“If the ambition is the same” as the Europeans, the United States relies on methods that “are simpler and faster”, he said.

“They put immediate and massive tax credits where we provide state aid (to specific projects) which sometimes take two years to be adopted and are too complex to implement,” said Le Maire.

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