Barely out of the worst recession recorded since the Second World War due to the Covid-19 pandemic, the French economy is preparing to face a new major shock. The war in Ukraine is causing a surge in commodity prices which will fuel the inflationary surges already present and reduce the purchasing power of households. The conflict jams the supply chain and plunges the world into a degree of uncertainty rarely achieved. The hypothesis of a growth of 3.6% for 2022, formulated in January by INSEE, now seems obsolete. Rexecode estimates, to date, that the war in Ukraine will cost between 0.7 and 1 point of GDP to the French economy.
Inflation, a major threat
“The increase in the price of oil, gas and raw materials has and will have consequences on our purchasing power: tomorrow, the price of a full tank of gas, the amount of the heating bill, the cost of certain products may to get heavier still, said Emmanuel Macron, in his speech on Wednesday March 2. According to the credit insurer Euler Hermes, the average annual bill for French households will reach 2,800 euros in 2022, i.e. 400 euros more than in 2021. At this shock – energy represents around 9% of the consumption basket of households, with significant disparities depending on the place of residence – in addition to increases in the prices of food products.
These include, in fact, raw materials imported from Russia or Ukraine, in particular wheat and sunflower oil, whose prices are currently soaring. What increase the cost of the supermarket trolley for households, especially since the negotiations between food manufacturers and distributors completed at the end of February have already resulted in an average increase of 3% in prices on the shelves.
The pace of inflation – 3.6% in France in February, ie before the start of the war in Ukraine – should therefore accelerate. “ We can estimate that we will reach 4% inflation in the spring,” calculates Philippe Waechter, chief economist at Ostrum. The freezing of gas and electricity prices decided during the winter and which might be extended until the end of 2022 should, initially, mitigate the impact on households: according to INSEE, it makes it possible to eliminate one point of inflation in France.
But it does not prevent: “It’s the purchasing power that will toast”, bluntly asserts the economist Philippe Waechter. In December 2021, when the inflation rate was only 2.8%, INSEE estimated that household purchasing power would fall by 0.5% in the first half of 2022, following an increase of 1 .9% in 2021. It now seems inevitable that this figure will be exceeded. Unless the “resilience plan” under study at Matignon manages to compensate for the soaring prices for the French.
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