More and more Germans are crossing the border to shop in France, because it’s cheaper. This is one of the concrete effects of inflation, which hits Germany harder.
Posted at 12:00 p.m.
France has the lowest inflation rate of the 19 eurozone countries. Inflation in France reached 4.8% in April, its highest level for 31 years. The rise in prices, which reached 5.4% according to the European harmonized index, is also lower than that of most industrialized countries, including Canada (6.8%), the United States (8.3%) and Britain, where inflation is currently hovering around 10%.
If the country is relatively spared, it is because it depends less on imported energy, gas or oil, than its European neighbors. France produces 70% of the energy it consumes with its nuclear power plants, at a cost that remains stable while the price of other energies has exploded. It is the increase in oil and gas prices, since the beginning of the war in Ukraine, which contributes the most to the rise in inflation.
The French government has also introduced measures to mitigate the impact of energy price increases, including a freeze on natural gas prices, a cap on the price of electricity and a rebate of 18 euro cents on the cost per liter of gasoline. These measures, which were very costly for the State, curbed the rise in inflation in the country.
The other euro zone countries are not in the same situation. The average inflation rate in the European Union is 7.5%, which covers very different realities. It ranges from 5.4% in France to 19% in Estonia, a country very dependent on imports for its energy needs.
Not easy, under these conditions, to exercise a common monetary policy as the European Central Bank must do. Even if inflation is at a historic level, the ECB is slow to follow the other central banks and raise its key rate.
In the United States and Canada, strong economic growth gives monetary authorities some leeway. In Canada, the economy is running at full speed, and the governor of the central bank can say that it can withstand rate hikes.
This is not the case for the European economy, which experienced an anemic growth of 0.2% in the first quarter and is on the brink.
Europe’s major economies are all beginning to suffer from the combined effect of inflation and the war in Ukraine. Italy is already in negative territory, while growth is slowing in Spain and stalling in France. As for the German engine, it still resists but is showing signs of running out of steam.
We can imagine that there have been interesting debates around the ECB table between those who want to fight inflation at all costs and those who also want to avoid recession at all costs.
Finally, the president of the ECB, Christine Lagarde, decided. A rate hike is announced for the summer. It would be the first hike in 10 years for the ECB, which has had negative rates for years. It would take two more increases, by 25 basis points, for the European rate to return to positive territory.
The Governor of the Bank of Canada and the Chairman of the US Federal Reserve have heavy responsibilities on their shoulders at the moment, but we bet they would not change places with Christine Lagarde.