Hot file on record inflation ahead of French legislative elections – EURACTIV.com
Record inflation and sluggish growth threatening France’s purchasing power are at the heart of the political debate, with the country due to go to the polls again on June 12 and 19. EURACTIV UK reports.
After the re-election of President Emmanuel Macron in April, the legislative elections are only a few weeks away while the inflation figures in the country are worrying.
The figures doubled from January to May, with inflation reaching 5.2%, “due to an acceleration in the prices of energy, services, food and manufactured goods”. Institute of Statistics and Economic Studies (INSEE) said.
To keep the economy afloat “at all costs” – in Macron’s words – the government has introduced numerous measures, including unprecedented furlough schemes and state aid to keep businesses afloat.
Many analysts are even betting on a strong and sustained post-pandemic recovery. They weren’t wrong, as GDP grew by 7% in 2021, while the unemployment rate hit 7.3% – the lowest since 2008.
While the economic recovery was underway in the second half of 2021, the gap between supply and demand for energy products has since widened and inflationary pressures have increased.
This discrepancy “has led to a rise not only in the price of oil but also in the price of gas and basic necessities”, wrote the OFCE, a French economic think tank, in a press release. recent report.
Growth at all costs
The government moved quickly to help people cover their rising gas and electricity costs.
In September 2021, Jean Castex, then Prime Minister, announced an “energy check” of €100 to be paid in early 2022. In addition to this, the government set up a “tariff shield” to freeze gas tariffs, active from October 2021.
The government also introduced a price cut of €0.15 (excluding taxes) per liter of fuel as prices reached record highs of over €2 per litre.
However, Russia’s war in Ukraine, which began on February 24, has dashed any hopes of a return to normalcy.
Supply chains are under pressure, while access to raw materials, including wheat, is drying up. This caused pasta, rice and dried fruit prices to rise in supermarkets by 15%, 2.4% and 3.4%, respectively.
The response to the crisis, according to the government, lies in reviving investment and innovation.
This is why Macron announced a 20 billion euro plan to reduce production taxes during the presidential campaign.
Economy Minister Bruno Le Maire also confirmed Macron’s desire to make a “budgetary effort” to the tune of 50 billion euros in spending for education, health and the climate.
While the European Central Bank (ECB) will most likely raise interest rates in July to counter inflation, French European Affairs Minister Clément Beaune has confirmed that further measures are in the works.
“We will continue to analyze the situation in a pragmatic way”, in particular on the question of “the revaluation of pensions” and “certain social benefits”, he declared during a public meeting in which EURACTIV France participated.
Exceptional sectoral aid is also envisaged, even if Beaune insists on the fact that “we are not going to shave the slate tomorrow”.
“Thanks to our strong measures of purchasing power, French inflation is half that of our European neighbours,” added Beaune.
The impact of these government measures has already been quantified by the OFCE.
According to its report, “the impact of the energy shock has been reduced to -0.7 points of GDP” against an estimated drop of 1.3% if such measures had not been put in place.
However, such measures are not enough, according to Aurélie Trouvou, economist and candidate of the new left alliance recently formed by Jean-Luc Mélenchon, labeled NUPES.
“The government’s plan will not work,” she said. Reviving the economy through growth would require “increasing purchasing power by increasing wages and benefits, which the government is not doing,” she told EURACTIV.
According to Trouvou, it is urgent to freeze the prices of energy and basic necessities in France first and then at European level.
The left-wing candidate also wants to raise the minimum wage and tax the profits of large companies, which she described as “a real driver of inflation in Europe”.
Austerity vs inaction
Although the causes of inflation are known, the possible solutions are politically sensitive.
With the cost of living rising in recent months, the government will no doubt avoid a return to austerity, but it does not want to be seen inactive either.
Finding the right measurements means solving a complex equation with no obvious answer. Government and opposition will need to respond quickly – with parliamentary elections fast approaching.
[Edited by Alice Taylor]