The French government has taken an aggressive policy to fighting inflation through subsiding energy bills of households and businesses is working to help push down the country’s inflation below that in Germany, but at a high cost of at least USD17bn this year.
The French energy regulator figures show that French electricity bills would have risen by 45% this year, rather than by only 4% under the French government’s current price shield. Inflation has risen less in France than it has in the other large eurozone economies.
Eurostat figures published last week showed French consumer inflation, as measured by the EU-wide harmonised measure, was running at 6.8% in July, significantly below Germany’s 8.5% rate, and Ireland’s 9.6%, and the 8.9% rate for the eurozone as a whole.
The key reason why energy inflation has been lower in France is the tariff shield introduced last autumn. Households on regulated electricity and gas tariffs will see their electricity bill rise by no more than 4% in 2022 and the gas bill is frozen at its October 2021 level until December 2022.
French President Emmanuel Macron said on Wednesday that there were tough months ahead as “freedom has a cost”. In the coming weeks, Macron administration will have to decide whether to renew price caps on electricity and gas at the end of the year.
