French Households' Budgets Under Pressure: Inflation and the Outlook

French households' budgets have been severely strained by rising prices in recent years. However, economists at the Bank of France predict that the situation will improve in 2025, with inflation around 2 percent.
 

In a market economy, it is common for the prices of some goods and services to rise while those of others fall. When all prices rise at the same time, this is called inflation, which reduces the purchasing power of every euro.
 

In France, inflation stood at +2.1% in 2021, then +5.9% in 2022 and +5.7% in 2023, according to the harmonized consumer price index cited in a recent study by the Banque de France.
 

Multiple Factors Contributing to Inflation

Several factors contributed to this increase, including disruptions to global supply chains during the post-pandemic recovery, rising energy and food prices following Russia’s invasion of Ukraine, and labor market tightness.
The causes of this inflation are similar to those observed in other advanced economies. However, France has implemented a price cap on energy costs, which has limited and delayed price increases. “The rise in inflation has been more gradual in France, and the peak inflation rate has been lower,” note economists at the Banque de France.
 

Favorable Outlook for a Sustainable Return of Inflation to Around 2% Starting in 2025
Experts confirm that disinflation is expected to continue in France, with inflation stabilizing sustainably at around 2% starting in 2025—a rate that corresponds to the European Central Bank’s medium-term inflation target.
 

“A sharp drop in the unemployment rate leading to persistent labor market tightness could push the inflation rate back above 2%,” and conversely, “a continued rise in the unemployment rate could push inflation significantly below 2%,” the economists explain. In both cases, monetary policy responses would be implemented “to prevent inflation from becoming too high or too low.”
Although French households’ budgets have been severely strained by recent inflation, the outlook for 2025 is encouraging. The expected disinflation should allow inflation to stabilize around 2%, offering consumers some relief. However, monetary policy adjustments will be necessary to maintain this stability, depending on developments in the labor market and unemployment rates.