Inflation in France: what is under review to help households?

French Prime Minister Jean Castex is expected to announce a series of measures aimed at combating the effect of current inflation rates, which have been propelled further by the conflict in Ukraine.

Inflation rates reached 4.1% in February – with fuel prices being most visibly impacted – and are expected to rise further in the coming months.

Head of the strategy committee for Leclerc supermarket chain, Michel Edouard-Leclerc, has said that food prices will also rise due to the fact that a large proportion of cereal production takes place in Ukraine and Russia.

The government’s proposed support package will be the result of discussions with “industry partners” including worker and business owner unions, and follows President Emmanuel Macron’s announcement of a new “resilience plan” designed to curb the impact of rising prices for people in France.

Read more:France to take further action over record fuel prices

“We will provide a response to everyone in France who is most severely affected by the crisis,” Economy Minister Bruno Le Maire told BFMTV.

“I am preparing for a scenario including [power] cuts, rising prices…There is uncertainty surrounding the counter-sanctions which will be decided [by Russia] and which we cannot fully predict. It is therefore wise to prepare for all different scenarios.”

The government is working to identify “all the sectors” particularly affected by the geopolitical crisis, most notably “aviation, agriculture [...] space” and “the car industry.”

“Our evaluation of the impact depends both on the sanctions we have imposed and the eventual counter-sanctions Russia will introduce,” Mr Castex said.

He added that the economic measures being planned now will not have the same reach as those related to the pandemic, as “we lost 8% of our GDP in 2020. We should not get to that point with this crisis, but there will be consequences.”

Le Parisien newspaper has reported that measures potentially being considered by the government include:

- A new inflation compensation bonus

A tax-free €100 sum aimed largely at addressing increasing fuel prices has already been rolled out to some 38 million people with an income of less than €2,000 per month.

Read more:€100 for people in France with income of less than €2,000 a month

However, the cost of fuel has continued to rise to record highs since the initial ‘inflation compensation’ bonus scheme was announced in October, and so the government could introduce a supplementary measure.

Read more:Conflict in Ukraine: Petrol prices hit record highs in France

“But this gesture cannot be replicated indefinitely,” economist Nicolas Goetzmann told Le Parisien. “The best action to make is diplomatic, convincing other countries to increase their oil production,” in order to “compensate for the drop in supply coming from Russia.”

- Fuel tax cuts

Reducing the amount of tax that the consumer pays on fuel would be very costly for the government, as tax currently makes up about 60% of the petrol station price.

Mr Le Maire has previously rejected the idea of reducing tax on fuel, saying in October that he was “more in favour of a measure like a fuel cheque than a tax cut.”

Reducing taxes even by one centime “represents half a billion euros, so it is very costly for a result that French people won’t even see,” he said.

Mr Le Maire has also stated that: “We must all make the effort” to reduce energy consumption, and to “develop total independence in terms of energy supply and be a lot less dependent on fossil fuels.”

- Extending the gas tariff freeze until the end of 2022

Barbara Pompili, the minister in charge of France’s ecological transition, told Franceinfo radio last week that: “We will extend the cap on gas tariffs until the end of the year” instead of the initial end date of June 30.

Until now, businesses have been excluded from the tariff cap, but certain firms which depend heavily on gas may be included in the measure under the government’s new plan.

Extending the tariff freeze will cost the State €10billion.

Inflation at 4.1% in February

French inflation rates reached 4.1% in February, compared to 3.3% in January, according to provisional figures from the EU’s statistics agency Eurostat.

In Eurozone countries, “energy inflation rates should be at their highest in February (31.7% compared to 28.8% in January), followed by food, alcohol and tobacco,” its report said.

Fuel prices have risen by around eight centimes per litre in the past week alone, according to price comparator Carbu.com. SP98 is now at €1.98 per litre, SP95 at €1.93 and diesel at €1.89. At some petrol stations prices now exceed €2 per litre.

The war in Ukraine will affect food prices because Ukraine and Russia normally provide up to a quarter of global cereal supplies.

France will not be affected by this immediately because it already has sufficient stock, but “inflation caused by sanctions [on Russia] will surface next summer,” Leclerc’s strategy lead Michel Edouard-Leclerc told Franceinfo.

“We already entered a period of inflation in December. This has resulted from the disorganisation of transports and the rise in the cost of transport since Covid, and from the Egalim law which guarantees a certain salary for farmers.

“In the coming months we will see an average rise of 3.6% on food products in all shops. There will be increases over the next few months, there will be increases over the summer after the presidential elections and then we will see the effects of the [conflict in] Ukraine.”

Inflation is expected to reach 5% in France in the near future.

How much of France’s gas comes from Russia?

Around 17% of France’s gas supply comes from Russia, compared to 55-60% in Germany.

However, Engie CEO Catherine MacGregor has said that: “Without Russian gas, we would enter an extreme situation.”

Gas prices have already risen from €75 per megawatt hour (MWh) – the measure of electricity output – before Russia invaded Ukraine to €195 now.

It would be possible for France to manage without Russian gas, but if the country had to turn to other countries prices would rise even more sharply.

France’s principal gas supplier is Norway, but it also buys stocks from the Netherlands, Algeria and the US.

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