Global Economic Outlook – September 2022 Annual HICP inflation eased to 6.6% in August, down from The French government has so far allocated a package 6.8% in July but well above the 2.4% level recorded a of measures (“tariff shield”) worth EUR72 billion (2.9% 1 year earlier. Although energy inflation slowed significantly of GDP) to protect consumers from rising energy costs . in August, core inflation picked up to 4.1%. Nevertheless, These include a freeze of gas tariffs (worth EUR7.8 billion) France registered the lowest headline inflation in the and a cap on electricity price increases of 4% this year EU. The main reasons for lower inflation in France have (worth EUR10.5 billion). These measures have been largely been due to a combination of its energy mix and the effective in keeping consumer prices in check: the National government’s measures to cap energy prices paid by Institute of Statistics and Economic Studies (INSEE) found households. Imports from Russia account for around 8.5% that the policy had prevented inflation from rising by 3.1 of gross available energy in France, which instead relies on percentage points in the year to 2022 Q2. However, a its large nuclear fleet to generate power. recent announcement that the tariff shield would remain in place in 2023, costing EUR16 billion, would result in significant further pressure on the public finances. Chart 35: Outlook for French inflation and unemployment The French labor market remains tight. The unemployment 9% 11.0% rate fell to a low of 7.3% at the start of 2022, although the Forecast downward trend has reversed in recent months. Relative 8% 10.5% to pre-Covid levels, the participation rate has increased, 7% 10.0% in particular among females aged 20-24. This is potentially 6% 9.5% thanks to more widespread hybrid arrangements that allow 5% 9.0% greater flexibility. We expect the unemployment rate to 4% 8.5% gently increase as demand weakens, averaging 7.5% this 3% 8.0% year and 7.7% in 2023. Annual HICP inflation Unemployment rate 2% 7.5% 1% 7.0% 0% 6.5% Michal Stelmach -1% 6.0% Senior Economist, KPMG in the UK 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 HICP inflation (LHS) Unemployment rate (RHS) Source: Eurostat, KPMG analysis. 1 Bruegel, National policies to shield consumers from rising energy prices, accessed 22 September 2022. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 36