Sunday, June 26, 2022

French inflation sets another record, fueling rate-hike debate

Inflation in France hit another all-time high, adding pressure to the European Central Bank to raise interest rates more aggressively after strong readings in Germany and Spain.

Onsumer prices in the euro area’s second-largest economy rose 5.8 percent in May from a year earlier – matching the average estimate of economists polled by Bloomberg – while increasing energy and food costs through other goods and services. continues to filter.

With this week’s figures from Germany and Spain already exceeding expectations, French figures suggest an overshoot when the euro area reports inflation numbers after Tuesday.

Meanwhile, fears of stagflation will be heightened by a separate report out of Paris showing the French economy shrank 0.2 percent in the first quarter of the past three months. This is a downward revision from the initial reading without any increase.

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The glut of economic data comes just a week before a meeting of ECB officials to decide when to end crisis-era measures including unprecedented asset purchases and eight years of negative interest rates.

They are set to announce an end to net bond-buying for the first time in more than a decade and confirm plans to raise borrowing costs in July. While chief economist Philip Lane said on Monday that quarter-point increases that month and again in September are a “benchmark pace”, some of his allies want to follow the Federal Reserve, which is considering a half-way move. .

The sharpest inflation in the euro’s history is also causing difficulties for governments – particularly in France where President Emmanuel Macron faces parliamentary elections next month. It is already committed to mitigating nearly €25bn ($27bn) of damage from inflation, but about €2bn more budget is needed as electricity costs rise further.

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“We are fully committed to fighting against inflation and protecting the poorest households against rising gas and electricity prices,” Finance Minister Bruno Le Maire said on Monday.

Statistics agency Inci estimates that those measures cut France’s inflation rate by about 2 percentage points. But that may not be enough to deter price fears on consumer sentiment that has already plummeted under the Yellow Vest’s protests over the lows set during the pandemic and the cost of living.

A separate Insy report on Tuesday showed consumer spending fell an unexpectedly low 0.4 percent in April from the previous month as households cut their purchases of food and manufactured goods. Economists polled by Bloomberg had predicted a growth of 0.5 percent.

Nation World News Desk
Nation World News Desk
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