France weathers inflation storm but price pressures are still mounting
France has so far avoided the bread price rises sweeping Europe — an indication not just of the baguette’s role in the country’s culture, but also of Paris’s relative success in holding down inflation. “Our prices have gone up at the slowest rate in Europe,” said Dominique Antract, who heads France’s main federation for its 33,000 pastry makers and bakeries. From his shop in Paris’s well-heeled 16th arrondissement, Antract hails the baguette’s “almost . . . sacred status”, which has made many producers reluctant to pass on increases despite the rising cost of flour. But he and the country’s bakers and bread-eaters have also been helped by government measures that shielded the economy from big swings in energy costs. While Europeans have, on average, seen the price of a loaf rise by almost a fifth, data from Eurostat, the European Commission’s statistics bureau, showed annual bread prices in France’s rose by 8.2 per cent.Economists maintain that energy subsidies to businesses and households lie behind France’s relative success in keeping in check the galloping price rises that have afflicted shoppers across the region.A baker takes baguettes out of an oven in Paris. French bakeries have so far largely resisted the bread price increases sweeping Europe © Yoan Valat/EPA/ShutterstockOther European countries acted to curb prices only after Russia’s invasion of Ukraine sparked a surge in energy costs, as well as in the price of wheat.But French energy subsidies — spearheaded by President Emmanuel Macron ahead of his re-election last April — meant Paris “got in very early”, said Ludovic Subran, chief economist at insurer Allianz. “It pretty much worked — it was a good call.”Unlike in other major European economies — including Germany, Spain and the Netherlands — consumer price inflation in France is unlikely to enter double-digit territory, peaking at 7.1 per cent in November — well below the regional average of 11.1 per cent.“France’s specificity is that it intervened much earlier than elsewhere,” said Anne-Sophie Alsif, chief economist at consultancy BDO France.The lower level of inflation has meant a less severe cost of living crisis than faced elsewhere.France is now forecast, unlike most EU countries, to avoid a recession in 2023, according to the country’s statistics agency Insee — which nonetheless forecasts that France’s output contracted in the fourth quarter and expects growth to slow sharply this year.The measures appear to have been inspired by political calculations, analysts said. In the run-up to last year’s election, Macron was keen to avoid a repeat of the “gilets jaunes” protests that followed his attempt to introduce a fuel tax in 2018.He made the decision to freeze consumer gas bills in November 2021, and to offer energy support of €100 to just under 6mn households in December that year. Since early 2022, rises in power bills have been capped at 4 per cent for consumers and the smallest businesses. The measures, which included discounts at the pump and cuts to electricity taxes, cost the government just over €34bn last year.“There was no reason at the time to bring in a power price shield for consumers other than to stop people from taking to the streets just before an election,” said Subran.Other factors helped tame inflation in 2022, economists say. French wage increases were on average lower than elsewhere in the EU, said Eric Dor, director of economic studies at the IÉSEG School of Management. France also had a fiercely competitive supermarket sector, with large retailers using their muscle to obtain low prices from suppliers, he added, though some were now also warning of rising prices.Paris plans to spend close to €46bn on further household energy protection in 2023, including limiting increases in gas and power bills to 15 per cent. The government has also earmarked €10bn in aid for companies to curb their energy bills.But some businesses remain concerned and are warning the help may not be enough.Cofigeo, a food group known for its William Saurin brand of canned cassoulet stews, has already said it will temporarily halt production at four of its eight French factories in January, since its renewed electricity contract means its bill is due to jump tenfold. Some energy-intensive businesses such as steel and glassmakers have also cut production.The largesse with subsidies could also store up other problems given the country’s debt level, say economists. Following the €240bn in state aid rolled out to help French companies in 2020 and 2021 during the coronavirus pandemic, public debt is far higher than the euro area average of 94.2 per cent, at more than 110 per cent of output.S&P, which recently revised the outlook for France to negative from stable, said the country could have less room for manoeuvre if further economic shocks materialised.“Higher interest rates [in 2023] will challenge the strategy taken by the French state,” said Sylvain Broyer, S&P’s chief economist for Europe.While inflation is falling elsewhere in the eurozone, figures out on Thursday are expected to show a small uptick in price growth in France. French inflation is expected to peak in the first quarter of 2023, according to the French central bank.
Many businesses, which do not benefit from the power price caps but have been protected by the fixed terms of their energy deals, face renewal of the contracts.At Antract’s bakery, power costs are set to increase fourfold in 2023, although state subsidies should cover around half the rise. If bakers put up bread prices by 10 or 20 cents per loaf, he said, most would be able to muddle through. “Some are freaking out, saying they’ll have to close . . . but I’m telling breadmakers they need to start passing on some increases,” he added. “It just won’t be an extraordinary year.” More
