It is more. Brussels revised upwards, Thursday, February 10, its inflation forecast in the euro zone for 2022: it will not be 2.2% but 3.5%. The European Commission, which was counting so far on a growth of the Gross Domestic Product (GDP) of 4.3% for this year, has redone its calculations: it will be rather 4%. In particular, the soaring energy prices. Franceinfo summarizes what to remember from this readjustment.
Inflation has never been so high since the creation of the euro
In December 2021, the inflation rate in the euro zone stood at 5% over one year. It was even 5.1% in January, according to Eurostat estimates. Unheard of since the creation of the euro. After being hit in 2020 by the effects of the Covid-19 pandemic, European economic activity rebounded strongly from spring 2021, before suffering a marked slowdown since the end of the year, under the effect of the rising energy prices and a resurgence of contamination and supply chain disruptions in industry.
An increase that must be put into perspective: the particularly high inflation recorded in 2021 is partly explained by the very low inflation of 2020. Indeed, the inflation rate is calculated in relation to the previous year and 2020 has been an exceptional year.
Also, sf we go back to before the creation of the single currency, these 2021 inflation rates are not surprising. In France, it was on average 10.1% per year between the end of the Second World War and the 1980s, according to INSEE. “But it was accompanied until the 1970s by sustained growth and low unemploymentremember The world. The objective of contained inflation only becomes necessary after the oil shocks and a decade of high unemployment, coupled with a sharp rise in prices.Inflation in France was only contained below 2% from the 1990s and entry into the economic and monetary union.also crop the newspaper.
Inflation will last in Europe
Health crisis, energy prices… If the situation weighs on growth at the start of 2022, “headwinds should gradually fadepromises the European Commissioner for the Economy, Paolo Gentiloni. We expect an acceleration of growth from the spring. Price pressures are expected to remain strong until the summer, after which inflation is expected to decline.”. Judging economic fundamentals “solids” in Europe, the Commission has also revised upwards its growth forecast for 2023 to 2.7% (against 2.4%) in the 19 countries sharing the single currency.
Regarding the rise in prices, the European executive is counting on a “peak inflation” to “record rate” 4.8% in the first quarter of 2022, before a decline in the second half of the year. Inflation should still remain above 3% in the third quarter, then drop to 2.1% between October and December. Brussels expects inflation to fall below this target only “in the course of next year”expecting 1.7% for 2023.
Inflation could also rise more than expected if price increases pass through to wages, leading to higher consumption (but this effect of rising wages is a debated theory). Above all, geopolitical tensions around Ukraine constitute a major risk. Russia is by far Europe’s largest gas supplier and a military confrontation with Moscow could push energy prices to new heights.
In France also
After having already reached 2.9% over one year in January, prices will continue to soar in the first half of the year in France. Inflation is expected to reach “between 3% and 3.5%”, estimated Insee, Tuesday, February 8. In its previous forecasts, published in mid-December, the National Institute of Statistics (Insee) forecast inflation above 2.6% for the first half of 2022.
This acceleration in inflation should, however, be contained by the measures put in place to support household purchasing power (energy vouchers, inflation compensation, gas price freeze, cap on the rise in electricity prices). “Without them, the inflation forecast for February would have been raised by at least one percentage point”or more than 4%, assesses INSEE.
With regard to economic activity, INSEE slightly lowered (to 0.3%) its growth forecast for the first quarter, against 0.4% previously, due to the arrival of the Omicron variant. But this slowdown, after growth of 0.7% in the last quarter of 2021, should be “temporary”. INSEE thus raised its growth forecast for the second quarter by 0.1 point, to +0.6%, with in particular a “slow dissipation” supply difficulties. He warns, however, about the difficulties of recruitment, which “reach record levels”.
The Governor of the Banque de France, too, wants to see the glass half full. In an interview at WorldThursday, François Villeroy de Galhau estimates that the peak of inflation will be reached within a few months. “Our business tendency survey at the beginning of February confirms that the recovery is solid and resisting [au variant] Omicron, he answers. It confirms our growth forecast, which should be at least 3.6% in 2022.” Before adding: “The main obstacle to growth is the lack of labor in certain sectors.” To the point of hoping for a return to full employment? “Yes, if we are tenacious and finally look beyond the Covid emergency alone. Today, the French economy is experiencing high growth and too high inflation, but, within two years, this image should reverse. In 2024, inflation will probably have returned to around 2% and growth will have returned, at 1.4%, to its pre-Covid trajectory.”