Business | Economy
Easing fuel and food prices bring August consumer inflation down
French consumer inflation slowed in August as fuel and food prices dropped, offsetting the end of summer clothes sales discounts and hikes in gas and electricity tariffs, data from statistics office INSEE showed on Friday.
- Reuters
- Published: 22:59 September 12, 2008
Paris: French consumer inflation slowed in August as fuel and food prices dropped, offsetting the end of summer clothes sales discounts and hikes in gas and electricity tariffs, data from statistics office INSEE showed on Friday.
A separate survey by the Bank of France found that business sentiment had perked up in August and business managers expected a slight increase in activity in the coming months. However, the flow of new orders weakened and the level of order books fell.
The central bank maintained its gross domestic product (GDP) growth forecast for the third quarter at 0.1 per cent. GDP contracted by 0.3 per cent in the second quarter and some econ-omists fear France could be headed for recession.
Consumer inflation slowed to 3.5 per cent year-on-year in August from an unrevised 4.0 per cent in July, INSEE said in a monthly release of EU-harmonised inflation figures.
On a monthly basis, prices fell 0.1 per cent in August. The month-on-month and year-on-year figures were both below a consensus forecast from economists polled by Reuters.
Economy Minister Christine Lagarde said the data was "good news" and would translate into lower prices for consumers, although private sector econ-omists were less impressed.
"What we can expect in coming months is a further slowing down of inflation in line with the trend in oil prices and also helped by favourable base effects," said Mathieu Kaiser of BNP Paribas, who expects year-end inflation at 2.5 per cent.
Job cuts
However, he said this should not be enough to boost consumer spending because households would not feel the statistical base effects in their pockets and the job market was deteriorating.
"Worries about the job market should pick up the baton from worries about inflation and it's hard to see an improvement in consumer demand in the second half of the year," he said.
Reports of job cuts have been prominent in French media in recent weeks. On Thursday, hundreds of workers at a Renault car factory in Normandy went on strike to protest against plans to scrap 1,000 jobs there by the end of the year.
The reports of trouble in the job market, which had been one of the relatively bright spots in the troubled French economy in recent months, have eclipsed the relief from an easing of fuel prices after months of relentless increases.
Energy prices dropped by 3.2 per cent month-on-month in August thanks to a global fall in oil prices, while food prices were down 1.2 per cent on the month - also a consequence of lower fuel prices that have helped reduce transport costs.
In year-on-year terms, energy prices rose 15.3 per cent while food prices were up 5.2 per cent.
The Bank of France's monthly barometer of business morale in industry rose to 94 in August from 92 in July, but econ-omists reacted cautiously to the increase.
"August's rebound, unfortunately, doesn't signal the end of the fall, all the more so when you look at details of the survey," said Olivier Gasnier of Societe-Generale.
"There's a drop in orders, in particular from the euro zone, an excessive increase in stocks and a drop in the rate of production capacity utilisation is not good for investment."
The central bank also said retail activity declined significantly in August and fell sharply year-on-year.
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