As anticipated, consumer prices rebounded in France in March, rising by 1.7% Year-on-Year after 0.9% in February. The harmonised index, closely watched by the ECB, stood at 1.9%, compared with 1.1% the previous month. This renewed increase in inflation is unsurprisingly linked to the situation in the Middle East. In the wake of higher oil prices, energy inflation jumped to 7.3% YoY, after a decline of 2.9% in February. The increase in gas prices is not yet reflected in consumer prices due to the structure of gas contracts.
Excluding energy, French inflation remains contained. Food price inflation slowed to 1.8% YoY from 2% the previous month. Prices of manufactured goods continue to decline, falling by 0.6% after a 0.2% decline in February. Services inflation edged up slightly to 1.7%, from 1.6% the previous month.
Overall, the conflict in the Middle East represents a major shock to the global economy and, by extension, to the French economy. The exact magnitude of the shock remains uncertain and will depend on the duration and intensity of the conflict. But one thing is clear: each passing day increases the risks to both growth and inflation. The figures published today confirm that a first inflationary wave is already underway. After fuel prices, second-round effects via transport costs and certain industrial goods should not be long in coming. The key question now is whether this will remain a temporary shock or mark the beginning of broader-based inflation, with de-anchoring of inflation expectations and stronger wage demands.