Inflation rates remained stable at 1.3% in December, matching November’s figures and signaling a consumer-friendly end to the year. Projected inflation for 2024 is around 2%, with the Bank of France estimating a slightly higher 2.4%. Factors influencing this stability include a slight rise in energy prices and a significant drop in manufactured goods prices. Anticipated declines in inflation are expected to continue, driven by slowing economic activity and decreasing energy prices.
Stable Inflation in December: A Consumer-Friendly End to the Year
The year concluded on a promising note for consumers as inflation rates stabilized in December, holding steady at 1.3% compared to the previous year, according to reports from INSEE released this Tuesday. This figure mirrors the rate recorded in November. Looking ahead, inflation for the entirety of 2024 is projected to hover around 2%, as anticipated by INSEE in their recent economic update, with the French Observatory for Economic Conjunctures (OFCE) echoing this sentiment. Meanwhile, the Bank of France forecasts a slightly higher average of 2.4% for the same period.
Factors Influencing Price Changes
A closer look reveals that the modest increase in energy prices in December (+1.2%) has been offset by a more significant drop in the prices of manufactured goods and a deceleration in food prices, which is expected to stabilize. INSEE highlighted that food price inflation was effectively zero in December year-on-year, recovering from a slight increase of 0.2% in November. Service costs and tobacco prices experienced year-on-year changes of +2.3% and +8.7%, respectively, remaining consistent with the previous month’s rates.
As we compare the current figures to last year, the reduction in prices is notable. In December 2023, the consumer price index soared to 3.7%. The trend of declining inflation throughout 2024 signifies a gradual retreat from the steep increases of prior years, primarily driven by the post-COVID recovery and geopolitical tensions resulting from the war in Ukraine. Inflation rates jumped to 5.2% in 2022 and remained elevated at 4.9% in 2023. Historically, inflation had only surpassed the 2.0% mark four times between 2002 and 2021, which was often linked to specific external factors like climate changes or public health decisions, as noted by INSEE in February.
Looking forward, the anticipated decline in inflation rates is expected to persist as economic activity slows, limiting the capacity of businesses to increase prices. INSEE predicts a year-on-year inflation rate of 1% by June 2025, with January witnessing a peak of +1.5% due to adjustments in regulated tariffs. This will be followed by a drop in February, attributed to anticipated decreases in electricity prices, as outlined by their latest economic insights. The Bank of France’s forecasts for the next three years suggest rates of 1.6%, 1.7%, and 1.9%, respectively, largely due to negative inflation trends in energy prices, signaling promising news for households.