Inflation slowed in October, but it still reached 4% over one year, according to INSEE figures.
“Prices are not falling”, reacts Tuesday October 31 on franceinfo Éric Heyer, director of the analysis and forecasting department of the French Observatory of Economic Conditions of Sciences Po (OFCE). According to INSEE, inflation slowed in October, but it still reached 4% over one year after 4.9% in September. “We will not find pre-crisis prices”, warns the economist. Growth continued in the third quarter, with GDP increasing by 0.1%. INSEE forecasts growth of almost 1% over one year. “If you have price inflation, but not income, you cannot have economic growth“, explains Eric Heyer.
Franceinfo: The Minister of the Economy Bruno Le Maire welcomes the slowdown in inflation: “We are emerging from the inflationary crisis,” he said. Is he right ?
Eric Heyer: Inflation is indeed falling. The two drivers of this over-inflation, energy and food, are gradually calming down. We must still remain vigilant with events in the Middle East. In the current state of the conflict, this should not have repercussions on barrel prices. But we will never return to pre-crisis prices, that is obvious, or at least not before the end of 2024. Nobody notices deflation: prices are not falling. It’s not a big deal to have this step in terms of prices, as long as there is the same step in terms of income, otherwise there is a loss of purchasing power. However, wages have increased less quickly than prices for two and a half years. Wages will now have to grow faster than prices. This is the challenge for the quarters to come.
Can we imagine an increase in salaries in the coming months?
There are recruitment difficulties in France at the moment so with this balance of power, there should potentially be an increase in salaries. Business margins are at a very high level at the moment, as shown by the latest economic indicators from INSEE. In many sectors, margins are well above the pre-crisis level. Companies could use part of these additional margins to increase wages, without having to increase prices. This would be the most virtuous way to do it.
At 0.1% growth in the last quarter, can we really speak of economic growth?
It’s sluggish growth, but it’s still economic growth. But unfortunately this will not be enough to create jobs. If you have price inflation but not income, you cannot have economic growth. With the slowdown in activity and job losses, this economic slowdown will calm inflation. We will succeed in fighting inflation, but still causing an increase in unemployment.