Inflation and national economyInflation 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. Since the beginning of 2022, inflation has been rising in France, from 3.3 percent in January to seven percent twelve months after.
Consumer Price Index and purchasing powerThe 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 2023, the overall consumer price index in France had reached 117.2 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 liquid fuels was over 195 in January 2023. Indeed, the explosion of oil and gas prices following the invasion of Ukraine by Russia in February 2022 has caused prices at the pump to soar.
While rising prices may be seen as a good thing from the economist point of view, not all French consumers share this enthusiasm: more than a quarter find their purchasing power rather low, and three quarters say they have seen their purchasing power decrease. Thus, people in France do not seem to be particularly optimistic about the country's future.