Daily Times

French inflation picked up to a near six-year high in June, lending support to the European Central Bank’s decision to close its bond-buying programme but signalling a squeeze for consumers in the euro zone’s second-biggest economy.

Data published by the national INSEE statistics office on Friday showed that EU-harmonised French consumer prices rose 2.4 percent, the highest since August 2012. The higher French inflation figures also came a day after inflation in Germany also surpassed the ECB’s 2 percent target.

With inflation gaining ground in the euro zone, the ECB said earlier this month it would end its crisis-era bond buying programme — originally designed to ward off deflation and stimulate the economy. But it signalled that any interest rate rise remains distant.

A breakdown of the French data showed jumps in tobacco and energy prices had contributed the most to the pick up in inflation.

President Emmanuel Macron’s government increased taxes on cigarettes and planned tax hikes on diesel and gasoline kicked in at the start of the year which, combined with rising crude oil prices, has pushed prices at the pump to an all-time high in May. [O/R]

That has hit French consumers, with their buying power falling by 0.6 percent in the first quarter, according to INSEE data released earlier this month. Data early on Friday also showed that consumer spending had fallen 0.2 percent over the year in May.

The government says lower payroll taxes starting from October and falling unemployment will eventually boost purchasing power.

Published in Daily Times, June 30^th 2018.