With income growth in France stagnating and prices for essential goods and energy on the rise, new figures from France’s National Institute of Statistics and Economic Studies (INSEE) indicate that France could be entering a period of stagflation, reports FRANCE 24.
Rising prices and weak economic growth could create the ideal circumstances in France for stagflation, some analysts warn. The combination of inflation and stagnation is an economic contradiction that risks undermining quality of life for many in France. While slow growth normally means an increase in unemployment that decreases spending power, rising prices mean the money which consumers do have begins to lose value.
A comparable economic situation has not been seen since in France since the 1980s: inflation rose once again in April to reach 4.8%, according to initial estimates published April 29th by INSEE. Inflation reached 7.5% in the same month across the eurozone, the highest-ever rate since the common European currency was introduced.
"The inflation is essentially due to increases in energy prices," said Thierry Breton, the European commissioner for the internal market, in an interview with France Inter radio on Saturday.
Price increases for essential and agricultural goods kicked into gear as the global economy resumed after the initial phases of the Covid-19 pandemic and then accelerated due to the war in Ukraine. Supply-chain disruptions in China, exacerbated by Beijing’s zero-Covid strategy, are also pushing prices higher.
"In France and all European countries, spending on transport and energy has become an enormous burden on household budgets,” economist Stéphanie Villers told FRANCE 24. “The initial effect of this is reduced consumption in the first trimester. Households are being cautious, as they understand that price hikes are going to affect their spending power – but household spending is the main motor for economic growth.”
Data from Insee shows household spending in France fell by 1.3% in March, correlating with a first trimester that saw gross domestic product came to a standstill. In the eurozone, GDP rose by only 0.2% in the first quarter while in the US it fell slightly. After a euphoric post-pandemic rebound in 2021, global economic growth has tapered off.