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ECONOMY

French economy hit by drop in consumer prices

France, Europe's second biggest economy, remains stuck in a deflationary spiral, provisional May figures released on Tuesday showed.

French economy hit by drop in consumer prices
Photo: AFP

A day after Germany reported a return of inflation into positive territory, the Insee statistics agency said France's consumer prices fell slightly this month compared to a year earlier.

Inflation in the wider eurozone also remained in negative territory in May, separate data published Tuesday by the Eurostat statistics agency said.

French annual inflation slipped 0.1 percent in May, largely due to a sharp fall in prices for energy and a decrease in prices of manufactured products, it said in its provisional estimates.

Annual inflation has remained in the red since February, even if the year-on-year drop was slightly less than the April figure, when prices slid 0.2 percent, the Insee statistics agency said.

On a monthly basis, French consumer prices in May rose by 0.4 percent compared to the previous month.

This resulted from an upturn in prices for food, especially fresh produce, and in petroleum products, it said, while other goods and services prices remained sluggish.

Under the Harmonised Index of Consumer Prices, used for comparisons between European Union members, France's inflation in May grew by 0.3 percent from theprevious month, and was stable year on year.

“In the coming months, inflation should continue to rise thanks to energy prices but the lack of improvement in underlying price pressures should limit the magnitude of the pickup,” HSBC analyst Chantana Sam said in a note to
investors.

On Monday, German data showed that rising prices for rents and services helped push inflation in Europe's top economy back into positive territory in May.

News that Germany had exited deflation — the term used to describe falling prices — was a welcome development for the European Central Bank, which targets inflation rates of close to but just below 2.0 percent, a level it sees as conducive to healthy economic growth.

The Frankfurt-based bank in March fired off a new volley of shots in its ongoing battle to avert deflation in the euro area and jumpstart economic recovery in the region.

The ECB's governing council, due to meet in Vienna Thursday, is not expected to announce any new stimulus measures as it continues to implement the range of measures announced in March.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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