“The battle has been won”, welcomes Bruno Le Maire

“The battle has been won”, welcomes Bruno Le Maire
“The battle has been won”, welcomes Bruno Le Maire

Inflation is “ behind us “. This is what Bruno Le Maire said this Tuesday morning at the microphone of CNEWS-Europe 1. The Minister of the Economy believes in fact that “ the battle has been won » against the rise in prices in France. “ I also announced that we would be around 2% inflation at the start of 2024, we are at the end of May 2024, and we are around 2% inflation, so the bet was won “, did he declare.

The latest data from INSEE on the subject supports this assertion. According to the statistical institute, prices increased by 2.2% in April over one year, confirming its first estimate of a slight slowdown in inflation, against a backdrop of a more moderate rise in food prices.

After inflation of 2.3% in March, the decline “ results from the slowdown over one year in the prices of food (+1.2% after +1.7%) and tobacco (+9.0% after +10.7%) », Specified the institute. The prices of manufactured products even fell slightly, by 0.1% (after +0.1% in March). The prices of services, which represent almost half of consumption, increased over one year at the same rate as in March, +3%, according to these final data.

The shadow of the still high cost of housing

We have prices at the pump which today are stable or slightly decreasing, we have some food products which are decreasing, but the fact remains that the cost of housing remains very high in many areas where it is tense. », nuance Bruno Le Maire.

We still have structural difficulties to resolve, but the inflation figure itself was five points higher just a few months ago. We fought a lot to bring it down to 2%. I made a commitment: 2% inflation by mid-2024. We are there, the commitment is kept », welcomed the Minister of the Economy.

“Plausible” key rate cut in June

Over one year, the harmonized consumer price index (HICP, which allows comparisons with other EU countries and is of particular interest to the European Central Bank for its monetary policy) increases by 2.4% in April 2024, as in March, and 0.6% over the month, after +0.2% in March.

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At its last meeting in April, the ECB judged “ plausible » to start lowering its key rates – currently at their highest – in June if the data confirms by then the anticipated return of inflation in the euro zone to the 2% target, according to the report published this week passed. The guardians of the euro expect inflation to return to this target in 2025, after 2.3% in 2024.

We are gradually emerging from the inflationary crisis and we will reverse the rate cycle », declared the governor of the Bank of France, François Villeroy de Galhau, heard by the Finance Committee of the National Assembly.

There may be short-term variations in inflation in the coming months, but we will bring inflation down to 2% by next year at the latest. “, he added.
So the time has come to decide on the first cut in short-term rates, in all probability at the beginning of June. Then, the pace of declines will be decided at each meeting based on European data and forecasts. “, he clarified.

Rate cut will depend on inflation for May

However, prospects of a cut in the European Central Bank’s (ECB) key rate next month appear somewhat dimmed ahead of May inflation figures, due on Friday.

Although the market still expects the European Central Bank to announce a cut in its key rates at the end of its next monetary policy meeting on June 6, this probability has decreased slightly since last week, notes Kathleen Brooks, from XTB. “ ECB rate cut expectations depend on May inflation » in the euro zone, published Friday, concludes the analyst.

Monday, however, ECB speakers expressed rather accommodating orientations, the French member of the Governing Council », the governor of the Bank of France, François Villeroy de Galhau « suggesting they should not rule out back-to-back (rate) cuts in June and July », Note Deutsche Bank analysts.

United States: Fed officials ready to raise key rates in the face of rebounding inflation

However, ” if inflation accelerates in Europe, the ECB will not be able to afford consecutive rate cuts », Tempers Ipek Ozkardeskaya, analyst at Swissquote Bank. “ The pace of rate cuts will be slower if there are upward surprises in underlying inflation ” Or ” of the level of demand, so if the European economy shows signs of a demand-led recovery », declared the economic head of the monetary institution, Philip Lane, Monday in Dublin. He added that the opposite was true in the case of “ downside surprises » of inflation.

Wage growth prompts ECB to be cautious

Furthermore, wage growth, raising fears of a return of inflation, could encourage the ECB to be cautious in its next decisions. This accelerated slightly in the first quarter of 2024 in the euro zone, according to figures published last Thursday by the ECB.

Wages in the euro zone increased by 4.69% in the first quarter after 4.45% in the previous three months, with employees continuing to negotiate upwards in order to compensate for real income losses linked to inflation. The ECB forecasts an increase in remuneration of 4.5% in the euro zone this year, 3.6% in 2025 and 3.0% in 2026.

In fact, members with a restrictive bias (“ hawks ) of the Governing Council could rely on these figures to stave off further declines later in the year. Isabel Schnabel, Pierre Wunsch, Klaas Knot, Joachim Nagel and Martins Kazaks had suggested that a second rate cut in July could be premature.

The ECB says nominal wage growth of 3% would be consistent with its 2% inflation target, with higher growth suggesting the existence of excessive wage pressures generating inflation.

Growth on target, inflation falling: the euro zone economy is recovering

However, the central bank also said workers deserved to be compensated for lost income and that a modest period of faster wage growth was acceptable, especially since corporate profit margins could absorb a much of this increase.

Bruno Le Maire calls not to “blacken the picture”

Questioned on this subject this Tuesday, Bruno Le Maire “ do not share this analysis » of the ECB hawks. “ I believe that we should not darken the picturedeclared the Minister of the Economy. We have managed to win the battle against inflation, we have controlled prices, we have wages which are more dynamic than prices, so much the better. We are also not going to fight to have wages that increase less quickly than inflation. “.

I don’t think it will cause inflation to rebound. This is the analysis of the hawks of the European Central Bank or of certain hawks in European financial circles, who as soon as there is a movement on wages tell you: “It’s terrible, we must immediately increase wage rates. ‘interest” “, he lamented. “ If every time wages increase we are told: “It’s tragic, it’s catastrophic, we have to tighten the screws”, it’s completely discouraging for those who work », insists the minister.

(With AFP and Reuters)

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