Inflation and national economy
Inflation refers to the loss of purchasing power of a currency, which means higher prices for households. While, at first glance, price increases may seem undesirable, inflation, when regular and moderate, is considered to be an ideal situation and one towards which economic policies tend to be directed.Inflation allows firms to forecast price increases over the medium term, encourages households to consume rather than save, and keeps interest rates low. However, certain extreme cases such as hyperinflation (high and rapid inflation) and deflation (meaning a significant fall in prices coupled with a fall in wages) should be avoided, because of their counterproductive impact on the national economy. The whole point of price increases lies in a balance maintained at around two percent. Inflation in France is currently at 0.5 percent, which is close to the European Union average.
Consumer Price Index and purchasing power
The Consumer Price Index (CPI), which is a tool for measuring changes in the price level of goods and services consumed by households, is a measure of a country's inflation rate. Indeed, the CPI makes it possible to evaluate the inflation rate for each type of goods on the basis of 100. When the CPI of a consumer product or service is 106, its inflation rate, for example, is six percent. In January 2021, the overall consumer price index in France had reached 106.1 points compared to 2015.The consumer price index can be calculated for a wide variety of goods and services, from food to rent, as well as transportation and leisure. As an example, the price index for watches and jewelry was over 112.5 at the end of 2020.
While rising prices may be seen as a good thing from the economist point of view, not all French consumers share this enthusiasm: nearly a third find their purchasing power rather low, and nearly half say they have seen their purchasing power decrease. Thus, people in France do not seem to be particularly optimistic about their future.
