Fuel shortages and rising food prices push up French inflation in October

Inflation rose sharply in October, to 6.2% from 5.6% in September. Over a month, consumer prices rose by 1%, after falling by 0.6% in September. The harmonised index, which is important for the ECB, stands at 7.1% compared to 6.2% in September. The strong increase observed in October is caused, on the one hand, by the new rise in energy prices following the rise in oil prices, but also in the context of the fuel shortages which followed the strikes in the sector's companies. Energy inflation was 19.2% in October, compared to 17.9% in September. Although considerable, energy inflation in France remains well below that observed in other European countries, due to the measures taken by the government (a 30 cent per litre discount on the price of fuel at the pump, combined with the maintenance of the tariff shield on gas and electricity prices). Together, these measures have reduced overall inflation by 2.5 points, according to INSEE estimates, which enables France to post a lower inflation rate than the rest of the eurozone.

On the other hand, and more worryingly, the rise in food prices continues to accelerate, rising by 11.8% in October, compared to 9.9% in September. Manufactured goods also saw their prices rise, by 4.2% compared to 3.6% the previous month. By contrast, services inflation was stable at 3.2%.

For the end of the year, inflation is likely to rise again in November and December, probably reaching 6.5%. Indeed, the fuel rebate will decrease in mid-November and December, which will reinforce energy inflation. In addition, past sharp increases in producer prices will continue to be passed on to consumer prices for manufactured goods and food. According to statistics published by Insee today, producer prices rose by 28.5% year-on-year in September, still a very high figure, although slightly down compared to August (29.5%), which should continue to be reflected in the consumer price index in the coming months.

For 2023, the evolution of inflation will depend on several factors: the public policies put in place to limit the rise in energy prices, the price of energy and raw materials on the international markets, the value of the euro against the dollar, and finally the speed of transmission of cost increases to consumer sales prices. The latter will be a central element of inflation in 2023. In recent months, French companies' expectations of future sales prices have fallen slightly, although they remain at a high level. Given the slowdown in demand and the expected recession (we expect French GDP to contract by -0.3% in 2023), it is likely that companies will be less and less able to pass on cost increases to their sales prices. These cost-related inflationary pressures should therefore diminish this winter, pushing price growth down in 2023.

In addition, the tariff shield will continue to have a significant impact on inflation in 2023. This should be renewed, but with a 15% increase in the price of gas and electricity for households over the year as a whole. This increase will obviously have a significant impact on energy inflation in France, which could rise in 2023 at a time when the contribution of energy to inflation is falling in other countries. As a result, France could see its inflation decrease less rapidly than in neighbouring countries until 2024. We expect inflation to be around 5% for the whole of 2023, after 5.3% in 2022.