Daily Reports
Consumer prices in France increased by 2.2% year-on-year in May, maintaining the same rate as in April, according to provisional data published by the National Institute of Statistics (INSEE). This stability in inflation is attributed to a slight slowdown in service and tobacco prices, which was offset by a significant rise in energy prices. Notably, energy prices did fall between April and May 2024, but they decreased even more sharply between the same months in 2023, contributing to this year's base effect.
Detailed observations reveal that prices of manufactured products and food are expected to evolve similarly to the previous month. On a monthly basis, consumer prices remained stable after a 0.5% increase in April. This monthly stability is due to a sharp drop in energy prices, particularly petroleum products, which was counterbalanced by increases in food prices and, to a lesser extent, manufactured products.
The harmonized consumer price index (HICP), which is used for European comparisons, rose by 2.7% year-on-year in May, up from 2.4% in April. This slight deceleration over one month, from +0.6% in April to +0.2% in May, can be explained by a drop in health sector reimbursements and changes in energy prices, which have a more significant impact on the HICP compared to the consumer price index (CPI).
Household consumption in France experienced a notable decline in April, falling by 0.8% compared to March. This decline includes a significant drop in food expenditure (-2.7%) and a modest rise in energy consumption (+1.3%). Although household consumption increased slightly by 0.2% over the year, this April drop follows a revised upward increase of 0.5% in March, driven by factors such as Easter-related purchases.
A decline in tobacco spending for three consecutive months reversed in April. Additionally, canned and processed fish sales decreased, while expenditure on durable goods like furniture, telephones, and household appliances saw a rise. Expenditure on clothing and textiles fell by 2%, largely offset by an increase in other durable goods purchases.
France's GDP grew by 0.2% in the first quarter of 2024, supported by foreign trade but penalized by lower-than-expected household consumption. This GDP growth marks a slowdown compared to the previous quarter's 0.3% increase. The 2023 growth rate was also revised upwards to 1.1%, attributed to a change in reference year by INSEE, which now uses 2020 instead of 2014 for national accounts calculations.
In Germany, inflation accelerated for the second consecutive month, climbing from 2.4% in April to 2.8%, exceeding Bloomberg's forecast of 2.7%. The harmonized price index in Germany also rose, influenced by wage negotiations resulting in a 6.2% pay increase, posing a challenge to the European Central Bank's (ECB) efforts to lower rates.
In related news, French household confidence remained stable in May at a level well below its long-term average, according to INSEE. Although household sentiment has increased by seven points over the past year, it is ten points below the long-term average. Concerns about future financial situations are on the rise, while opinions on savings and the standard of living have shown slight improvements. Specifically, the share of households feeling it is appropriate to save has increased, and their opinion on standard of living in France has also seen minor upticks.
- The balance of opinion among households regarding their current and future financial situations continues to display fluctuating trends. While opinions on future saving capacity improved slightly, current savings capacity witnessed a decline. Both measures, however, remain above their long-term averages.
- Household fears concerning unemployment have risen, with the balance measuring these concerns increasing by five points, yet remaining below the long-term average. Interestingly, households seem to have adjusted to the declining inflation rates, as the share of those believing prices have increased over the past year has decreased, even though it remains well above the long-term average.
- The economic conditions in France and Germany illustrate broader trends in Europe, impacting both domestic consumption and international trade. As the ECB continues to navigate its monetary policies, the interconnectedness of national economies becomes increasingly evident.
