Prices, margins, wages: why inflation is still likely to last

After having committed tens of billions of euros to preserve the purchasing power of the French, the executive now wants to force manufacturers and distribution to moderate their margins

Prices, margins, wages: why inflation is still likely to last

After having committed tens of billions of euros to preserve the purchasing power of the French, the executive now wants to force manufacturers and distribution to moderate their margins. A bill must be presented on Wednesday September 27 to this effect. Emmanuel Macron also announced the extension of targeted aid for fuel at the pump, up to 100 euros per year, for the lowest-income workers. Finally, a social conference on salaries should also take place in the coming weeks.

Because it has been two years now since the inflationary episode that began in the summer of 2021 has caused labels to soar. This phenomenon, which, according to many economists, was not expected to last, has finally taken hold. Many questions continue to arise on a daily basis: Will prices go down? Who benefits? Who are most affected?

Please note, when we talk about deceleration or slowing down of inflation, this does not mean that prices are falling, it is only the increase which is less strong. According to the Banque de France, we could expect “in the absence of a new shock on imported raw materials” a decline in inflation “around 2% in 2025” – it is currently hovering around 5% .

In the immediate future, there may be temporary price reductions on certain products, in particular those whose production cost depends on a raw material whose price is falling (eggs, cereals, oilseeds, etc.). So that the shelves more faithfully reflect these reductions, the Minister of the Economy, Bruno Le Maire, asked manufacturers and distributors to agree on a list of 5,000 references (out of the 20,000 to 35,000 that we found in hypermarkets) whose prices will be frozen or reduced.

Concerning fuels, E. Leclerc indicated on Tuesday that its stores would sell them at cost price on a daily basis in the coming months.

Furthermore, there could be price reductions resulting from annual negotiations (advanced to end in mid-January rather than March) between producers and distributors. But this mainly concerns contracts with the largest suppliers, and again: the global milk giant, Lactalis, has already announced that it refuses early negotiations with large retailers, ensuring that it does not have the means to lower its prices for the moment.

However, such efforts on labels must be put in a broader context and not only considered from month to month. On the other hand, looking at the broader picture of average prices, it is unlikely that the latter will fall in the near future: statisticians at the Banque de France expect a persistent rise in prices of 4.5% for the last three months of the year, before a more marked deceleration in 2024.

Since 2022, large companies have been in strong health thanks to their ability to increase their prices. Some even claim it to explain very satisfactory results despite falling sales volumes. Over the first six months of the year, Danone saw its turnover and profits increase thanks to the “price effect”. Its competitor Nestlé has opted for the same strategy and the results are also there. Bruno Le Maire named others (Unilever and PepsiCo) on France 2 on August 31, accusing them of making “undue margins at the expense of the consumer”.

To limit price increases, some manufacturers choose to cut portions without warning consumers – who do not always look at the price per kilo. This phenomenon, now known as shrinkflation (shrink means "to shrink" in English), is also in the sights of the Minister of the Economy, who announced a law forcing manufacturers to clearly display changes in the weight of their products. products.

On the distribution side, there is still an effort to be made to pass on more quickly the price reductions obtained during negotiations on labels, a delay often lasting several months, the time to sell off stocks which can hardly be sold off due to the ban on selling at a loss and the need to preserve margins. The latter, however, remain very comfortable at many distributors, starting with E. Leclerc, Carrefour, Système U and Lidl.

While inflation initially rose faster than wages, eroding consumers' purchasing power, a catch-up was observed in the second quarter of 2023 for the first time since the price surge began in 2021 .At the end of June, gross salary excluding bonuses and overtime increased by 4.6% year-on-year. Meanwhile, the price increase was 4.4%.

In the end, real wages improve a little. Will this improvement on the remuneration front continue? According to human resources specialists, salary increases could be around 4.8% this year, for inflation standing at around 4% at the end of December, according to forecasts from the National Institute of Statistics and economic studies.

Several caveats, however: we are talking about averages here, but in reality, all workers are not equal. Executives have only seen their salaries increase by 3.8%, so they are losing out with current inflation. Likewise, certain sectors are less affected by revaluations, the tertiary sector in particular.

Finally, the counterpart of this catch-up in wages: barring an economic crisis, we must no longer count on clear and lasting declines in prices. By a ratchet effect, once wages have been increased, it is impossible to go back and therefore subsequently reduce the prices that have increased. “We must tell the French that things will not return, in food, to pre-crisis prices, because many elements have changed, including salaries,” explained Dominique Schelcher, CEO of U system.