Record inflation hot topic ahead of French legislative elections

As the European Central Bank (ECB) will most likely raise interest rates in July to counter inflation, French EU Affairs Minister Clément Beaune has confirmed that other measures are in the pipeline. [Maxx-Studio/Shutterstock]

Record inflation and sluggish growth threatening French purchasing power are at the heart of the political debate, with the country set to head to the polls again on 12 and 19 June. EURACTIV France reports.

After re-electing President Emmanuel Macron in April, legislative elections are just a few weeks away while the country’s inflation figures are worrying.

Numbers have doubled from January to May, with inflation reaching 5.2%, “due to an acceleration in the prices of energy, services, food and manufactured goods,” France’s Institute of Statistics and Economic Studies (INSEE) has said.

To keep the economy afloat ‘at whatever cost’ – in the words of Macron – the government introduced many measures, including furlough schemes and unprecedented state aid to keep companies afloat.

Many analysts even bet on a strong and sustained post-pandemic recovery. They were not wrong, as GDP grew 7% in 2021, while the unemployment rate reached 7.3% – the lowest since 2008.

As 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 increased.

This gap “has resulted in a rise not only in the price of oil but also in the price of gas and basic necessities,” OFCE, a French economic think-tank, wrote in a recent report.

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Growth at all costs

The government quickly took action to help people cover their rising gas and electricity costs.

In September 2021, Jean Castex, then prime minister, announced a €100 “energy voucher” to be paid at the start of 2022. On top of that, the government implemented a “tariff shield” to freeze gas tariffs, active from October 2021.

The government also introduced a price reduction of €0.15 (excluding tax) per litre of fuel as prices reached record highs of more than €2 per litre.

However, Russia’s war in Ukraine, which started on 24 February, has dashed hopes of any return to normalcy.

Supply chains are under pressure, while access to raw materials, particularly wheat, is drying up. This has resulted in pasta, rice, and dried fruit prices in supermarkets going up 15%, 2.4% and 3.4%, respectively.

The answer to the crisis, according to the government, lies in reviving investment and innovation.

This is why Macron announced a €20 billion plan to reduce production taxes during the presidential election campaign.

Economy Minister Bruno Le Maire also confirmed Macron’s willingness to make a “budgetary effort” to the tune of €50 billion in spending on education, health and the climate.

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Several measures are required “without delay” for the most exposed companies and the population, …

Urgent measures

As the European Central Bank (ECB) will most likely raise interest rates in July to counter inflation, French EU Affairs Minister Clément Beaune has confirmed that other measures are in the pipeline.

“We will continue to analyse the situation in a pragmatic way,” notably on the issue of “the revaluation of pensions” and “certain social benefits”, he told a public meeting attended by EURACTIV France.

Exceptional sector-specific aid is also being considered, though Beaune insists that “we are not going to shave off the slate tomorrow”.

“Thanks to our strong measures for purchasing power, French inflation is half that of our European neighbours,” Beaune added.

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 GDP points” compared to an estimated 1.3% drop if such measures had not been implemented.

However, such measures are not sufficient, according to Aurélie Trouvé, economist and candidate for the new left-wing alliance recently formed by Jean-Luc Mélenchon, branded NUPES.

“The government’s plan will not work,” she said. To revive the economy through growth, it would be necessary to “increase purchasing power by raising wages and benefits, which the government is not doing,” she told EURACTIV.

According to Trouvé, there is an urgent need to freeze energy and essential goods prices in France first and then at the European level.

The left-wing candidate also wants to increase the minimum wage and tax the profits of large companies, which she called “a real vector of inflation in Europe”.

Austerity vs inaction

Although the causes for inflation are known, possible solutions are politically sensitive.

With living costs increasing over the last few months, the government will undoubtedly avoid a return to austerity, though it also does not want to be seen idle.

Finding the right measures means solving a complex equation with no obvious answer. The government and the opposition will have to respond quickly – with legislative elections just around the corner.

[Edited by Alice Taylor]

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