In 2021, inflation in France reached 3.4 percent, according to Eurostat—a rate below the eurozone average of just over 5 percent. In addition to energy costs, this inflation can be attributed to the simultaneous economic recovery of the world’s major economies.
The economic recovery is indeed characterized by strong demand, particularly for raw materials. This major rebound has thus led to supply shortages, congestion in ports, and transportation bottlenecks. However, we are already seeing the first signs of production lines clearing up. This bottleneck was, in fact, caused by the fact that everyone had started consuming goods—industrial goods in particular—at the same time.
This is an initial indication that suggests—though we must remain cautious—that prices, which continued to rise in January 2022, could stabilize later in the year or even decline slightly by the end of the year.
On the energy front, the rise in gas prices today is driven not only by climate-related factors but also by geopolitical ones, particularly our dependence on Russia, whose regional and international position is highly unstable amid the conflict with Ukraine. As for electricity, for legitimate environmental reasons, coal has been replaced by gas, including in power plants.
Since gas prices are rising, electricity prices automatically rise as well. There is therefore a strong interdependence of prices in this recent surge in inflation, which also affects services and food, albeit to a lesser extent. Finally, when inflation rises, the prices of other goods and services will increase because they are indexed—sometimes by legal provision—to inflation. For example, there are contracts betweenhighway operators and the government that provide for an automatic increase in toll rates every year on February1, based in part oninflation, which explains the most recent increase of about 2 percent.
However, the rise in gas prices is expected to slow down or even come to a halt in 2022. Admittedly, the situation in Ukraine is a cause for concern and creates uncertainty regarding the price of Russian gas. But we can also consider certain new sources of supply and, under favorable political conditions, the opening of the new Russian gas pipeline, Nord Stream 2, which would help reduce costs by transporting additional volumes of gas.
As for fuels, we did indeed see a drop in the price per barrel of oil in the spring of 2020 because economic activity had slowed significantly. Producers then cut production in an effort to stabilize prices. With the economic recovery, demand for oil has risen sharply, and Brent prices have returned to their 2018 levels, though they remain far below those recorded between 2012 and 2014.
The global economy is thus entering a phase of post-crisis recovery, for which businesses appear to be prepared. Public health measures have not undermined the productive capacity of the economy, and the “whatever it takes” strategy, along with global stimulus plans, has proven effective.
In 2020, there was a short but severe recession, in the order of 8% (while purchasing power remained constant), and there were no fears of inflation, but rather concerns about a potential major economic crisis accompanied by rising unemployment.
However, two years later, it is instead the “great resignation” and recruitment challenges in certain sectors that are causing concern. The situation now requires companies to return to the negotiating table and do their part in 2022. The unemployment rate is also expected to remain low, and, based on our projections, we can assume that wages up to 1.7 times the minimum wage will increase on average in 2022, perhaps by 2 or 2.5 percent.
In this context, it is therefore reasonable to envisage a positive economic outlook for France in 2022. Under this scenario, growth would be around 3–3.5%, and purchasing power could continue to rise. According to the Directorate General of the Treasury, this increase could be 1% in 2022, after reaching 2.2% in 2021 and 0.4% in 2020.
This measure of purchasing power is calculated statistically using national accounts. The change in purchasing power for all households is calculated as the difference between the change in household income and the rate of inflation—which is known in France as the consumer price index.
However, while the purchasing power of French households has increased since 2017, it is also evident that the resulting gains have not been distributed evenly across all households. Furthermore, the Institute for Public Policy estimates in a recent study that , for the bottom 5 percent of households , the standard of living has actually declined very slightly.
Thus, behind our national statistics—which are based on averages—we must take into account the reality faced by the poorest French citizens, who, due to their lifestyle, may experience a decline in purchasing power. Indeed, if these low-income households have to use their cars very frequently, heat their homes with gas, and live in energy-inefficient homes, then the nominal increase in their fixed expenses is likely to result in a loss of purchasing power despite government assistance such as energy vouchers and the inflation allowance.
Conversely, a household with a comfortable income that uses public transportation and lives in a newer home will see a more significant increase in purchasing power. Even if they do not receive the recent government aid, their expenses remain less constrained by rising energy prices, and they will also have been able to benefit from tax advantages, such as a reduction or exemption from the housing tax, tax exemptions on overtime pay, and so on.
Consequently, the current context reminds us that we are emerging from an economic crisis, and that our economies are in a very unique post-recession recovery phase, in which the least well-off households must not be the most vulnerable. Inflation is, in fact, a sign of a healthy economy, and, given this unique context, we must dispel—at least for the time being—doubts about the risks of an inflationary spiral (the idea that rising prices lead to demands for wage increases, which in turn lead to further price increases by companies seeking to pass on those wage increases, and so on) as well as those regarding the risks of stagflation (the coexistence of inflation and unemployment).
However, a key issue that will arise in the second half of 2022 will be the rise in interest rates. The European Central Bank will, in fact, have to manage the “end” of its accommodative monetary policies (quantitative easing) by opting for a delayed and very gradual increase in interest rates, so as not to hinder the economic recovery.
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