Further acceleration in inflation threatens activity

After 3 months of slowdown, inflation accelerated again in October. According to Insee's provisional data, it reached 6.2% year-on-year, posing a threat to the country's economic activity. We take a closer look at the rebound in inflation.

Inflation soared again in October

According to the latest provisional data from Insee, consumer price inflation soared again in October, after slowing for 3 months. Year-on-year, it reached 6.2%, compared with 5.6% in September. This is the highest level since June 1985, when inflation reached 6.4% year-on-year.

Over one month, consumer prices are forecast to have risen by 1%, after falling by 0.6% in September. The Harmonized Index of Consumer Prices (HICP) is expected to rise by 7.1% year-on-year in October.

No sector was spared by this latest acceleration in inflation. Energy prices rose by 19.2% year-on-year, mainly due to strike action at refineries, which led to shortages offset by imports.

Food products rose by 11.8% in October, and the increase was even 16.9% for fresh produce alone, compared with +11.3% in September. The cost of manufactured goods rose by 4.2% year-on-year. The only sectors whose prices rose at the same rate as in September were services (+3.2%) and tobacco (+0.3%).


Inflation is set to continue rising over the coming months, especially as certain measures designed to preserve purchasing power are set to disappear or be eased.

The tariff shield introduced by the government to contain rising electricity and gas prices will be extended to 2023, but the increase will be limited to +15%, compared with +4% at present. The discount of 30 euro cents per liter of fuel has also been extended to November 15, then reduced to 10 cents from November 16 to December 31, 2022, before disappearing.


GDP up only 0.2% in Q3

This inflationary context poses a real threat to growth. In Q3 2022, GDP grew by just 0.2%, compared with 0.5% in Q2. Household consumption is at half-mast (+0%), despite being the main driver of growth, accounting for 55% of GDP.

Over the summer, purchases of goods fell by a further 0.5% in volume terms, and food spending fell by 0.7% in September. Exports rose by just 0.7%, remaining at a very low level since the beginning of the year, while imports, thanks to purchases of capital goods and electricity, remained at a higher level (+1.9%). Buoyed by the manufacturing sector, business investment continued to accelerate (+1.3%).

Despite weak GDP growth in the 3rd quarter, and zero growth expected in the final quarter according to Insee forecasts, the French Minister of the Economy and Finance is reassuring.

" French growth is holding up well in a deteriorating international environment," said Bruno Le Maire in a note released by his office.

The government forecasts GDP growth of 2.7% in 2022, while INSEE estimates 2.6%. The end of the year will be decisive, but many economists are already expecting a recession in the coming quarters.

To limit the repercussions of rising energy prices on the country's economy, the government is to introduce two schemes to help businesses. The first, worth 7 billion euros, will be used to reduce the bills of SMEs and VSEs not benefiting from regulated electricity tariffs. The second will provide 3 billion euros in aid to large companies and ETIs weakened by the energy crisis.