France: Inflation will continue to weigh on growth in the second quarter

According to INSEE, price increases should reach 5.4% in June over twelve months and weigh on household purchasing power. Consequence: after zero growth in the 1st quarter, economic activity would only progress by 0.25% in the second.

Inflation will continue to accelerate in the coming months, and in June, it should reach 5.4% over twelve months, weighing on household confidence and their purchasing power, according to the latest economic update from the National Institute of Statistics and Economic Studies (Insee) made public on May 9. This should lead to a “modest” growth of 0.25% of the French economy in the second quarter, after a zero increase in the first.

In its document, the organization anticipates that gross domestic product (GDP) will be supported in particular by a catch-up effect in service activities which were penalized at the start of the year by the Omicron variant, even if international uncertainties (war in Ukraine, Covid in China, etc.) call for caution.

Household consumption should thus “rebound slightly” in the second quarter, after a decline of 1.3% in the first, employment prospects remaining favorable despite recruitment difficulties, while those of companies are contrasted depending on the sector.

In total, the mid-year growth overhang (annual growth level if economic activity stagnated in the second half) would be 2.6% according to INSEE. After the zero growth recorded in the first quarter, Julien Pouget, head of the business cycle department at Insee quoted by AFP, therefore dismisses at this stage fears of stagflation, which is characterized by economic stagnation doubled by “sustainably” high inflation.

But INSEE warns that vigilance is still required on inflation. Indeed, the rises in producer prices have already started to pass through to consumer prices and this movement should continue over the coming months.

After reaching 4.8% over one year in April, according to a provisional estimate by INSEE, inflation should reach 5.4% in June, driven in particular by food prices, expected to rise by 6.3% in June, and by energy prices, +26% in June after +29.2% in March.

INSEE specifies that without the “tariff shield” on gas and electricity and the “fuel discount” put in place by the government, inflation would exceed 7% in May, year-on-year. But, despite these measures, the rise in prices is weighing on household purchasing power, which should decline by 0.5 percentage points in the second quarter after having already fallen by 1.5 points in the first.


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