25 avril 2024

Daily Impact European

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The slowdown or even the end of the inflationary phase in France

The peak of inflation has probably passed. After a loss of purchasing power, the trend is towards a return to normalization. The coming months will be marked by a decline in the phenomenon of inflation.

The peak of inflation has probably passed. After a loss of purchasing power, the trend is towards a return to normalization. The coming months will be marked by a decline in the phenomenon of inflation.

Food prices will fall just as energy prices have fallen, provided that distributors very quickly play the game of lowering prices.

Forecast calculations indicate a level of inflation equal to 4% for the end of the year and 2% in 2025. To date, it is 14%.

Many economists have synthesized and shaped the many information that drown us second after second. My understanding is that the inflation rate is heading in the right direction. It is necessary to remember that the inflationary process that we are undergoing in France is old. It started with the Covid crisis because the supply lines were disrupted and the price of international freight was multiplied by 4 or even 5. It has returned to a normalized trend.

Then, with the revival of consumption, demand exceeded supply and prices rose. Consumption then slowed with the episode of the war in Ukraine. We have seen a surge in the cost of energy, gas, oil, etc., as well as prices in the food sector, wheat for example. When energy prices fell again, food prices leveled off.

What is the situation today ?

It is given to us to note that the famous price-wage loop has not been triggered.

Following a rise in the price of raw materials, we could have witnessed a legitimate demand for the level of wages and then wages catching up with prices, the latter would have increased in turn.

In reality, we note that wages have evolved by an average of 5% when prices have evolved by an average of 5.7%. The loss of purchasing power has been contained for employees, however there is a good margin for catching up.

The infernal price-wage circle has not taken place. The infernal price-margin circle did not take place either. We were very impressed by the increase of some prices, but it is not general, the margin rates did not increase uniformly. Margin rates have increased for some large companies that have monopoly power, but this does not represent the bulk of the French economy. On average, the margin rate is equivalent to what it was in 2021.

If we sum up, there is no price-wage dynamic, no margin-price dynamic, so logically inflation will decelerate after the current phenomena of diffusion throughout the economy of price increases which have took place in the field of energy and raw materials.

We are currently (technically) only experiencing a delay effect. Food prices increased by 15% on average in April (INSEE), which is considerable.
We know that manufacturers and distributors only negotiate/negotiate once a year… and not only in theory. At this level, it is urgent and even vital for French society and democracy, in view of the fall in the prices of raw materials and energy, that these two players put themselves, as they promised, as quickly as possible around of a table to lower consumer prices Example at the level of sunflower and wheat the high prices on the resulting products are no longer justified in trade in France. Distributors, even if they do not want it too much, must commit to a serious price reduction on their products.

Otherwise, they knowingly maintain inflation by blaming the producers.

Inflation would, in the absence of negotiation for a price reduction, no longer be for economic reasons but commercial. This position of restraint on the negotiation of distributor-producer prices delayed the drop in consumer prices. Moreover, this position has also and above all maintained and still maintains, beyond any economic principle, the feeling of downgrading of the French.

The Elabe Institute estimates that 30% of French people are in a fragile situation and risk falling into poverty. Many families live with the uncertainty of tomorrow and feel very threatened.

In order to protect them, the intermediary bodies demand and strongly desire an indexation of wages to prices. However, the SMIC (salary reference element) adapts well to rising prices. The rise in the minimum wage is triggered automatically as soon as prices exceed a threshold limit. The minimum wage has been revised several times recently and is now fully indexed to prices. (Actually as soon as inflation increases by 2% the SMIC is indexed – today it is at 1700 euros gross-.)

The crushing phenomenon is our daily life, the INSEE data indicates a fall in prices of 5.7% and a rise in wages of 5%, the social contract therefore held firm during the hard of the crisis. The differential of 0.7% indicates a drop in purchasing power (only 0.7%) for employees.

Purchasing power from an economic point of view has been preserved as a whole in France compared to the whole of Europe. And this almost automatically because in our country there is the indexation clause on the minimum wage and the automaticity of revisions.

The feeling of downgrading is one of the effects because if the minimum wage is indexed, wages above do not follow this rule. This gives rise to the phenomenon of crushing the salary pyramid and the salary scale. So what the majority of French people experience is averageization, which they experience as impoverishment, in other words a leveling down, the perception of which translates into contempt, injustice, and the perception of a loss of power. ‘purchase.

The perception of a loss of purchasing power is suffering and is experienced as an injustice.

We must take this social suffering in connection with the wage crash very seriously. It is a question here of the sharing of value and wealth. Each year France creates additional wealth. How are they distributed at the moment? What goes to the labor factor and what goes to the capital factor? Has the relationship deteriorated to the detriment of work? The answer is no. The ratio of the sharing of productivity is remarkably stable and this also for the sharing of capital work. Over the past 20 years the labor share has increased slightly differentially with respect to the capital share. Over the past 30 years, the curves show us this stability. France at this level is a social oasis.

However, we live in a country that is not doing very well, because when we look closely at the figures, we see an impoverishment of France compared to Germany, Spain, Italy, there are and there will still be a depletion of economic France (if we take into account over 30 years the GDP per capita – wealth per capita-).

One explanation is probably that over a year or over a lifetime the French work less than their neighbours, and this means that there is a form of arbitration among the French, voluntary or involuntary, between material gain and gain in quality of life. .

The good news…

…is that the momentum of rising commodity and energy prices has come to a halt. The phenomenon of falling prices has begun. Wages have not followed the rise in prices, the wage-price loop is not engaged. Even if over a year and the last few months the French have become poorer but are not ruined. The good days of gaining purchasing power are here and the clouds are slowly dissipating but dissipating.

The growth and resumption of the happy lifestyle is announced.

In order to accelerate its perception at the level of the middle class and the underprivileged classes, a monthly producer and distributor round table is to be launched and maintained. Prices will fall slowly and then faster as confirmed by IMF and ECB figures.

Finally an exit from inflation if the producers and distributors want it. They boast the lowest prices, it’s up to them to respect their commitment.

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