Inflation – not past the peak and easing will be gradual for France

France has dodged soaring price pressures better than its eurozone peers, but we think its inflation will fall more slowly. Reduced support for consumers and sticky core inflation mean that headline inflation is likely to continue to rise in the very short term.

What you will learn:

• Inflation in France was the lowest in the eurozone in 2022 at 5.2% y/y, well below the bloc’s average of 8.4%. Administered electricity prices were hiked only 4% last February, while regulated gas prices were frozen and fuel duties on petrol and diesel were reduced. As a result, energy inflation averaged 23% in France last year, much lower than the 37% in the eurozone.
• Now, though, we think energy inflation will ease more slowly in France than in the rest of the eurozone. The government is likely to limit the fall in retail prices as it unwinds household support and phases out other measures due to their high costs.
• The lower contribution of energy to France’s headline inflation also means that the core and food subindices have a greater impact on overall inflation. So, inflation in France is likely to continue to rise in Q1, whereas it seems to have passed the peak in the rest of the eurozone. We anticipate France’s headline inflation will average 5% in 2023, above the 4.9% for the eurozone.