Banque de France Bulletin no. 243: Article 1 French households and inflation in 2022

Thematic: Politique monétaire et inflation

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Inflation expectations that are stable and close to 2% help the central bank to achieve its price stability objective. In light of the recent acceleration in price rises, the Banque de France and the polling institute CSA questioned French households in May June 2022 on the main economic challenges they face, their inflation perceptions and the role of monetary policy. Purchasing power and inflation were the leading concerns for 60% of households, while 82% said that monetary policy affects their purchasing power. When questioned on perceived and expected inflation, households’ responses varied markedly. The answers depended notably on the respondents’ age, gender or educational attainment, but also on their daily experience as a consumer. This underscores the importance of communicating clearly and firmly on the global economic situation.

Consumer price inflation has been elevated since the end of 2021, reaching 6.2% in France in October 2022 according to the Consumer Price Index (CPI) compiled by INSEE. This is the highest inflation rate seen since the 1980s, when inflation was running at above 7% in annual average terms. Over the first 20 years of the euro’s existence, consumer price inflation was kept at an average rate of 1.4%. The current high rate poses a major challenge for French households in their daily lives. It is also a priority for the Banque de France and European Central Bank (ECB), whose mandate is to keep prices stable over the medium term.

One prerequisite for price stability is that prices and wages set today do not incorporate expectations of future strong price growth. If this were to occur, price rises could become self sustaining, triggering an inflationary spiral. This would cause economic agents to alter their economic decisions, especially regarding wages, employment, investment and consumption (Weber et al. 2022). It is therefore crucial for the Banque de France and ECB to understand how economic agents form their inflation expectations.

This article is based on the results of a survey conducted by the polling institute CSA at the Banque de France’s behest, and covering 5,054 French residents aged 18 and over. The households were questioned between 28 April and 11 June 2022, in other words two months after the outbreak of the war in Ukraine and the subsequent jump in inflation. Inflation was running at 3.6% in February 2022, but then rose to 5.2% in May and 5.8% in June, which is close to the October 2022 level. Our main findings are as follows:

60% of French residents surveyed consider that inflation and purchasing power are currently the main economic challenges.
82% of households think that monetary policy has a strong or fairly strong impact on their purchasing power.
Household inflation expectations are linked to their perception of the level of inflation over the past year.
Perceived levels of inflation differ from one household to another. These differences can in part be explained by the characteristics of the person surveyed, such as gender, age or educational attainment. They also depend on the frequency of certain purchases and on the change in those prices to which respondents are most exposed. …