France does not like being told higher inflation is good for it

This weekend has seen a further escalation in the Gilet Jaune or yellow jacket protest in France. This has so unsettled Bloomberg that it is running a piece suggesting it could happen in the UK perhaps as a way of mollifying the bankers it has suggested should go to Paris. However, let us dodge the politics as far as we can as there is a much simpler economic focus and it is inflation. From the Financial Times.

Mr Macron introduced the increases in fuel taxes last year, as part of a package intended to attract investment and revitalise economic growth. They were also intended to support his ambition of setting France on course to ban sales of petrol and diesel cars by 2040. The tax is rising more sharply for diesel fuel, to bring it into line with the tax on petrol, as Mr Macron’s government argues that the advantage it has enjoyed is unjustified. Since the Volkswagen emissions scandal, it has become more widely accepted that diesel vehicles do not have the advantage in environmental impact over petrol engines, although manufacturers are still defending the technology.

Let us analyse what we have been told. How do you revitalise economic growth by raising costs via higher taxes? Perhaps if that was your intention via this move you would reduce taxes on petrol instead of at least reduce petrol taxes by the same amount you raise the diesel ones. As to the point about diesel engines I agree as I am the owner of what I was told was a clean diesel but has turned out to be something polluting both my and other Londoners lungs. Not President Macron’s fault of course as that was way before he came into power and of course he is the French President. But no doubt they encouraged purchases of diesel vehicles ( by the lower tax if nothing else) as we note that when the establishment is wrong it “corrects” matters by making the ordinary person pay. This especially hits people in rural France who rely on diesel based transport.

The details of the extra tax are show by Connexions France from October 2017.

Tax on diesel will rise 2.6 cents per litre every year for the next four years, after MPs voted in favour of the government’s draft budget for 2018.

As this from the BBC shows this is as well as higher taxes on petrol.

the Macron government raised its hydrocarbon tax this year by 7.6 cents per litre on diesel and 3.9 cents on petrol, as part of a campaign for cleaner cars and fuel.

The decision to impose a further increase of 6.5 cents on diesel and 2.9 cents on petrol on 1 January 2019 was seen as the final straw.

If we look at the November CPI data for France we see that it is at 1.9% but is being pulled higher by the energy sector which has annual inflation of 11.9%. In a piece of top trolling Insee tells us this.

After seven months of consecutive rise, energy prices should fall back, in the wake of petroleum product prices.

If we look at this via my inflation theme we see that as well as energy inflation being 11.3% that food inflation is 5%. So whilst central bankers may dismiss that as non-core and wonder what is going on? We can see perhaps why the ordinary person might think otherwise. Especially if they like carrots.

 Vegetable prices rose by 15.2% over one year with prices going up for salads (+15.6%), endives (+19.5%), carrots (+76.7%) and leeks (+54.2%). In contrast, tomato prices went down by 12.3% over one year.  ( Insee October agricultural prices)


This morning saw the monthly series of Markit purchasing manager’s indices on manufacturing published.

November data pointed to the softest improvement in French manufacturing operating conditions for 26 months. The latest results reflected falling new orders and job shedding…….Manufacturing output was unchanged since October. That said, the latest reading represented stabilisation following a drop in production in the previous month.

It used to be the case that Markit was downbeat on France but these days it is very cheery. If we look at the last two months then production is lower as are jobs and new orders yet we are told this is an improvement! In reality the zone 49-51 represents unchanged and 50.8 is in that, although I do note that the 53.1 of the UK is apparently “lacklustre”. Anyway here is the view of the French situation.

However, any negativity towards unchanged output could be misplaced given it represented stabilisation after October’s decline.

Moving to prices they hinted that the protests might not be about to end any time soon.

On the price front, input costs continued to rise in
November. The rate of inflation was the strongest for nine
months, following two successive accelerations. Panellists
overwhelmingly blamed higher cost burdens on increased
raw material prices.
Survey respondents noted that part of the additional cost
burden was passed onto customers, with charges rising
solidly again in November.

Official data

On Friday we saw that September seems to have seen a slow down in the French economy.

In September 2018, the sales volume in overall trade fell back sharply (−2.1%) after an increase in August (+1.8%)…..In September 2018, the turnover turned down sharply in the manufacturing industry (−2.3%) after a strong increase in August (+2.8%). It also went down in industry as a whole (−1.9% after +2.8% in August)……In September 2018, output in services was stable after a strong increase in August (+2.9%).

As you can see all measures saw weakening in September and eyes will be on the services sector. This is because whilst the national accounts do not present it like this the 1% growth for the sector was what made it a better quarter. So let us also dig into the situation further.

According to business managers surveyed in November 2018, the business climate in services is stable. At 103, it remains above its long-term average (100).

Otherwise, the indicator of October 2018 has been revised downward by two points because of late businesses’ answers that have been taken into account.

Considering this revision, the turning point indicator stands henceforth in the area indicating an unfavourable short-term economic situation.

The Bank of France remains optimistic however.

According to the monthly index of business activity (MIBA),
GDP is expected to increase by 0.4% in the fourth
quarter of 2018 (first estimate).


We often discuss the similarities between France and the UK but the ECB has this morning given us another insight, as according to its capital key France is virtually unchanged in relative terms over the past five years if we look at GDP and population combined. I will leave readers to decide for themselves if the Euro area average is good or bad as you mull the official view.


Switching back to France it has not been a great year economy wise even if the Bank of France is correct about this quarter. But its establishment seems to be up to the games of those elsewhere whilst is to push its policies via punishment ( higher taxes ) rather than encouragement. These days though more have seen through this and hence the current troubles.

Weekly Podcast


31 thoughts on “France does not like being told higher inflation is good for it

  1. Diversifying from whether France likes inflation or not, BREXIT stockpiling being going on for a while now but not been debated much. I have provided two links below one from the Guardian and the other link form the FT:


    Growth is already slowing now globally, with stockpiling been going on for a while now due to BREIXIT the minute it starts to unwind and gets to more normal levels, manufacturers in the UK and Europe could see a far deeper decline in 2019, adding to a steeper slowdown.

    Just saying!

  2. Good podcast – they are always very interesting and to the point – I wonder if any politicians listen in?
    The Markit comments are typical of organisations that cant avoid letting their political views get in the way of reality. They have decided that all things Eurozone are good at the moment and Britain bad because of Brexit. The numbers indicate otherwise but they refuse to let hard facts cloud their view. No doubt when British economic figures drop to current French levels in future it will be a catastrophe. One of the reasons I read Shaun’s blog everyday. He sticks to facts and not hype.

  3. Shaun
    Re French veg prices this year , see link below
    Also because of bad harvests the year before prices increased 18% , add to that the government raising the Resale Below Cost (RBC) threshold by 10% , and you have a ‘perfect storm’.
    Macron’s lot wasn’t satisfied with that , it had to introduce increases in fuel levies just as the price of oil went from $50 to $90. The French outside cities still heat with oil a fair bit, and of course drive cars, a large percentage of which are diesel, encouraged just like you. Now Macron likes to say its because of ‘climate change;, but in reality its because of raising money. He won votes because he promised to make dental/optician charges zero for all or nearly all people. He also promised to do away with one of the two property taxes, the Taxes Habitation. He needs to raise taxes to do this, so just at the time of increased fuel costs he raises the taxes on fuel.
    Unsurprisingly many people are not too impressed with the above. Hence the normal French habit of expressing their concern with politicians; and the farmers haven’t joined in yet!

    • Hi JimW

      Thanks for the link and I enjoyed this bit.

      “Mr Rouchaussé referenced melons that cost €5.50 each, and tomatoes sold at €8 per kilo.

      “Melons today cost between 40 and 60 centimes for the producer, so when we see the cost at €5.50, for me, that’s unacceptable. Tomatoes cost 80 centimes per kilo for the producer. When I see these prices, I fall out of my chair,” he said.”

      Quite a gap but in his rush to blame foreign producers in some way he failed to explain how buying what is presumably more expensive French produce would improve things.

      There is a lot of irony in the oil price as Macron thought he saw a chance when it was lower has been caught out by it going higher and is still under fire now it is lower!

      • Shaun, he is not blaming producers, he is blaming retailers who have kept prices artificially high. French produce at the many markets is plentiful and excellent value because of high quality. But like every country more and more people working/living in towns and cities don’t have the time to shop at such markets and use the supermarket chains that ( in the main, there some honourable exceptions including the ‘Germans’) overcharge.

  4. According to another blogger yet another reason is the increase in tolls as well, it’s all out war on Joe Le Taxi… I mean average. Unemployment is rural areas is becoming endemic and youth employment an epidemic no matter what the official figures say. So what does M. Macron do? He decides he’s going to balance the budget with a dose of Thatcherism aka expansionary austerity. It was never going to end well and I said so at the time.

    • Hi bill40

      I wish I had thought of Joe Le Taxi as I was typing the article. But yes there were other tax increases such as raising the carbon tax. I didn’t want to have a post full of tax changes.

      As to the deficit things are not going so well as this from Reuters in March shows.

      “France will cut its budget deficit faster than expected over President Emmanuel Macron’s term as growth proves stronger than previously estimated, the Finance Ministry said on Tuesday……..It now expects growth of 2.0 percent this year for the second year in a row before activity starts easing slightly in 2019, it said in an annual long-term budget plans prepared for the European Commission.”

      Yep just as economic growth was slowing down they were forecasting it picking up. Far from just a French thing of course but awkward to say the least.

  5. The other hidden fact is the need to shift diesel usage away from private road users.

    As we move more and more onto unconventional sources of oil the ability to generate heavy fuels such as bunker oil for shipping and diesel gets harder. As the bulk of actual goods transport and agricultural machinery needs these fuels then there is none left for Joe Public. France which is more dependant on diesels than the UK and has chosen taxes as the means to wean people of diesel, bit of a blunt instrument and the results are plain to see on the streets of Paris.

    You can see this happening in front of our eyes, (the demonising of diesel cars,banning from city centres, emissions limits which are impossible to meet, shipping being fined and required to use lower sulphur fuels, etc)

    Maybe this is peak oil (everyone thought it would be a general impact across the entire spectrum of oil products instead it is manifesting itself at a more granular level) I suspect it is myself as much of the issues we face are actually resource driven and not climactic.

    • Hi Jason

      That’s an interesting idea but surely a few places would have spotted it and be making the point? Although of course we are in an era where so many debates are only allowed to have one side. I noted a tweet from the ITV last week about climate change discussing 165 years of evidence and claiming that meant it was a certainty. In what other sphere would 165 out of 4.5 billion be considered conclusive?

      • Sorry Sean but that point doesn’t really hold. Human numbers and technology have only been significant for 3000 years at most, with larger scale industrial technology around for ~300 years, and the argument is (as I understand it) whether human activity is affecting the global climate.
        Of course if the climate is changing and if it is doing so independently of people, then we may end up hoping human activity *can* affect the global climate.

        • The argument is whether human caused increases in CO2 in the atmosphere is causing run away increases in temperatures. So far no-one has produced any repeatable scientific evidence that increases of the trace gas in the earth’s atmosphere causes increases in temperatures. There have been literally $bns spent over 30 years on more and more computing power used to model the supposed relationship, but of all the models produced for the IPCC only one has remotely matched the actual temperature. That one is Russian, the rest completely overstate temperatures by several degrees. Incidentally the Russian one forecasts no increase in the current temperature trend of well under 1 deg per century, which is the expected natural increase after the medieval mini ice age finishing in the mid 1800s. And the trend of sea levels is also unchanged over the last century.

      • Hi Sean, sure it does seem a bit esoteric but as I’ve often said to friends and colleagues, while climate change is an issue, it is in the 100 to 200 year threat range for us today.

        Not so resource issues, some forecasters (in particular the US Navy who are not known for ‘conspiracy theories) are pitching 2020-2023 as the period when things really bite. That’s only a few years away.
        Our whole industrial civilisation is dependant on cheap energy, the money is just a mechanism for managing resource allocation/distribution.

        We have staved off peak oil using fracking, tar sands, etc but as you know the numbers don’t add up in terms of the EROEI. It’s just another can kicking exercise to stave off disaster while those in the know try and grab as much as they can in an attempt to survive the cataclysm

  6. Since the same people behind the scenes run all these countries in Europe, the policies are very similar but with one endgame – to totally destroy them. In the UK we have the government shutting down all our coal fired power stations that have the national resource – coal – in such abundance there is literally hundreds of years of supply, and replacing them with renewables that offer variable to zero reliability with the result the reserve capacity is being whittled down to almost zero thereby running the risk of power outages every winter, the price of electricity has risen to subsidise all these so called green energy sources.

    I work opposite one that burns wood chips to generate electricity- a biomass plant – except it doesn’t – it hardly ever runs and it has been like that now for a couple of years, but I’m sure the company behind it do not care, the subsidies they are receiving from the government will make them a profit anyway. And as if the insanity of all this isn’t enough for your brain to take in, the wood comes from Canada, so someone cuts down a tree in the Canadian wilderness, transports it by lorry to the mill where it is chipped, then loaded onto another lorry, driven to a port, loaded on to a ship, sails to England and then the chips are loaded onto another lorry and transported to the biomass plant, a waste bucket loader then pushes it up into a massive pile and then feeds it as required into the furnace.

    How in gods name can that be eviromentally friendly? And this is being done by your government who are robbing you to pay for it, and noone says a word.And to combat the shortages the government are bringing in smart meters so that they can jack up the price of gas and electricity when the inevitable shortages reach critical levels to discourage their usage, and you will be told by your politicians that you SHOULD pay more at peak times as it is the only way we can reach our green targets.

    Similarly the French are shutting down their nuclear stations which provide cheap electricity to replace it with expensive unreliable renewables.

    • Yes Kevin. And all because we are told a completely impossible thing to measure has increased by an infinitesimal amount. ‘Global average temperatures’ have increased by less than the difference in temperature measured at the top of your head to the bottom of your feet. I do not exagerate. And what makes up this infinitesimal average increase; the average yearly maximums are going down slighty, balanced by the average yearly minimums going up ever so slightly more.
      Yes its a life threatening outbreak of ever so slight mildness.
      For this we are being brainwashed on a daily basis to change our way of lives, our economies and just about everything else including our freedoms.
      The most recent increase of propaganda has arisen because Trump has threatened to halt the progress of this movement across the globe, and is encouraging others to question its wisdom. Unfortunately Trump is pretty awful at communicating the reasons for his ‘scepticism’ except to say he isn’t going to let the US pay for ‘Paris’.
      It needs more, much more to stop what appears to be an inexorable process.

      • The real issue is resources, the PTB cant come out and say this as we can see in France what will happen and that is just the start. Add to the problem that those who think they are better do not want to have to change their lifestyles while expecting the plebs to completely throw away everything.

        They tried climate change and it didn’t work so they then thought pulling the plug in 2008 would do the trick. They are now busy using ZIRP/NIRP, QE, etc to by up what they need, retreat to a bolt hole somewhere and wait the upcoming war/famine/disease. The only problem is radiation or ebola do not recognise ‘wealth’ or borders so what they think they will inherit lord only knows.

      • I suspect those that Trump listen to take the view that they’re onto a no-loser – if climate change is not real then they’re saving American business,and if it is real then they reckon the US will survive it better than most others and be in a stronger position once enough of the world’s population have died off to reduce the human impact back to safer levels.

    • Kevin,

      coal , oil and nat gas are not abundant anymore and the Indians and Chinese have the ability to out bid us – which is never mentioned.

      The price of oil is still above the long term average and LTO cannot survive without ZIRP / BIRP.

      Renewable s look fine on paper with the subsidies but scaling up means country sized solutions – that costs . How much it will cost is a State Secret as the plebs will revolt . if you think 13/14p per KW is bad wait until we get 27-30p – yes that’s coming when we get to 25/30% renewable’s .

      As you say SMART meters are to cut us off , by price or by force de majeure. the extreme parties left or right will have a hay day when Granny is starving because she cannot afford to cook , or a hospital restricts admissions due to a calm non sunny day.

      this is coming if we follow this route . I am not anti-renewable it’s just I see no real critical thinking about the absolute scale of the problem , or willingness to take the major actions required – good god even HEP is now considered “not Green” !!

      As for France taking its nukes off line has anyone thought of the cost in the increase in nat gas consumption? , we buy about 3GW worth most days and those anti nuke Germans do the same .too.

      So Macron is finding out that taxes are a problem – whoopee , wonder what he”ll do when the bill for the building of gas turbines and its fuel comes in ….

      Still , so long as I can get enough power to cook some popcorn 😉


      PS : France went to nuclear and diesel as they have little in the way of natural resource – even HEP is restricted to a few Alps locations ( Pyrenees too )

      • I’ve posted this link before and the source is getting a bit out of date but it’s an excellent read that can be purchased as a book or downloaded for free and it’s full of charts for those, like me, who prefer pictures). It’s an analysis of the prospects for generating the UK’s energy from renewables by the then Government Chief Scientist and is intended to provide unbiased information about the options for others to make decisions on. I hope you find it an interesting read.

        • ehehehhe

          I have that link permanently bookmarked

          I’d make it required reading for all politicians and economists along with requirement to have have “O” levels in maths, physics and chemistry along with the three laws of thermodynamics ( or four laws ).



          • How many times I have said the same thing! Politicians and science do not mix – Tony Blair with light bulbs and diesel cars come to mind. You would think they would ask for expert advice from independent scientists but instead have advisors with their own warped views and agendas.

      • “coal , oil and nat gas are not abundant anymore and the Indians and Chinese have the ability to out bid us”

        We have our own coal and so do not have to get into a bidding war for foreign coal, UK reserves are estimated at 3.6 billion tons but could be as large as 187 billion tons.
        That doesn’t even take into account the new find in the North Sea just off the coast of an estimated 3-23 TRILLION tons.

        So the decision to shut down coal fired stations and burn imported gas and subsidise renewables is to me just plain treason.

        • indeed , there seems little point in cutting coal when the likes of China and India are quite happy to increase it – and have made provision to do so

          regardless of if you believe climate change it is pointless to cut our consumption in the face of such vast increases from the eastern countries

          are we really going to be like Australia and ban coal only to sell it to other countries to burned just to feel good we’ve cut CO2 emissions ?

          seems that way


          PS: bringing back to France – if they had our coal reserves does anyone think they be cutting back ( given the French actions over CAP ) ?

        • Yes, again, Kevin. Not just UK, with the Chinese building at least 270GW of new coal fired power stations just in China, and at least the same again worldwide, there are estimated to be 162 new coal fired stations in over 60 countries.
          And I wish I had a £ for everytime I read about ‘peak oil’ , I would be a billionaire.

        • Wow! This blog has become a cesspit of gammons with tin foil hats! Where does the smoke from all those coal fired stations blow to? If you’re going to be ok with living close to a coal powered station with it’s thick air and acid rain from time to time just move to China then! This has become an alt-right blog with climate change deniers and open xenophobes. My only hope is your age average is quite high so you won’t be around much longer!

  7. Great blog as usual, Shaun.
    Nice of you to mention the French output agricultural price indices. Like all EU APIs, the French series are obliged to have monthly baskets for fresh produce. In fact, of the vegetables mentioned, endives drop out of the basket altogether in June and July, while tomatoes drop out of the basket in January, and some years in December as well. Potatoes are not part of this fresh vegetables aggregate, but their prices are up sharply too, by 55.1% overall.
    While Eurostat insists on all fresh produce having monthly baskets in output APIs, EU statistical agencies are free to employ monthly baskets for other categories. The French series has them for horticultural products ( and plants), while the corresponding UK series, regrettably, doesn’t, at least for now. The October 2018 update tells us that irises, which drop out of the basket from June to September, had an annual inflation rate of 48.8% in October.
    In your blog, you distinguish between core and non-core inflation, where food and energy are treated as non-core. Although l’INSÉÉ itself refers to «inflation sous-jacente» as “core inflation” in the English-language version of their release, the literal translation, “underlying inflation”, more accurately reflects its intent. The exclusions from the French index of underlying inflation were never meant to be luxuries, retaining necessities like food. They aim at excluding state-influenced goods (electricity,natural gas, tobacco…) and goods with volatile prices subject to supply shocks or whose prices are determined in international markets (petroleum products, dairy products, fresh produce, meat , flowers and plants…). Without pushing the comparison, the French core CPI is similar to the CPIX measure that was the Bank of Canada’s operational guide from 2001 to the end of 2016, which was also an exclusionary series that only excluded some food categories while including others. Annual core inflation was only 0.8% for October 2018 (if l’INSÉÉ calculated it for the November 2018 preliminary estimates, it doesn’t provide it in its report), which looks suspect when the overall CPI was up by 2.2%, but there is a logic in their measure of core. You can’t eat ipods, and only starving people would eat irises, but the production of irises is subject to supply shocks so they are excluded from core; the production of i-pods is not, so they are included.
    The French output API is the only official monthly price index in the world that publishes (as opposed to calculating and making available on request) a component index for Christmas trees. I once delusionally thought an exchange-rate adjusted version of this index might serve as a proxy for Christmas trees in the UK consumer price series, but unless sterling is pegged to the euro and there is much greater French penetration of the UK market this would not be a rational move. The UK output API for Christmas trees might however, be a valid proxy. It’s chief weakness is its lack of timeliness, but this would not be a fatal weakness if the UK consumer price series had a long revision period like the Swedish CPI or the US chained CPI.

    • Hi Andrew and thank you

      I had been thinking of you as I noted that the steady trail of people leaving Battersea Park carrying real Christmas Trees had begun this weekend. Usually it is men carrying the tree with their wife or girlfriend along to observe and mostly look pleased! Actually it is a nice thing to see although I guess the trees are two a penny in quite a bit of Canada.

      I note that you mention the humble spud or potato which I have not noticed getting more expensive over in the UK whereas a bag of carrots has. I am not so sure about leeks as I buy them from time to time but they are expensive. This year supermarkets in the UK seem to be competing with brussel sprouts which are often cheaper. Did Canadian vegetable prices ever drop as I recall them being an issue a couple of years ago?

      • Thank you, Shaun. Natural Christmas trees are on sale at most of the shopping malls, but we haven’t bought one yet. As for vegetable prices, they are still a problem in Canada: in October the annual CPI inflation rate was 2.4% for All items, but 11.3% for fresh vegetables, of which 10.1% for potatoes, 16.6% for tomatoes, 14.4% for lettuce and 10% for other fresh vegetables. The latter is not a proxied series, but based on pricing of other vegetables, including turnips. Here the humble spud is definitely more expensive than it has been.

      • It appears that one of the reasons fresh vegetable prices are up strongly in Canada in 2018 is the legalization of cannabis, which has caused a substantial shift in domestic greenhouse production from vegetables to cannabis.

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