MAGGIE PAGANO: Macron feels the heat as French inflation hits 7.2%

Zut alors! Even the usually charmed President Macron has failed to escape the ravages of inflation plaguing Europe.

So far, France has avoided some of the huge price hikes experienced elsewhere, mainly because of the country’s prudent nuclear energy strategy, which has shielded the country from the worst of recent skyrocketing fuel prices.

So Macron will not be happy if the latest inflation figures for February set a French record of 7.2 percent, up from 7 percent in the previous month.

The jump mainly reflects higher food and services inflation now biting.

With both headline and core inflation set to continue rising in the coming months, French prices are now unlikely to peak until the summer.

This suggests an average inflation rate for the year of 5.5 percent, and 6.3 percent for what is known as the Harmonized Index, much higher than forecast.

Spain also suffered from unexpected price increases last month. Both headline and harmonized inflation rates rose to 6.1 percent, compared to 5.9 percent in January, surprising economists who had been expecting a fall to 5.5 percent.

With prices soaring, it certainly looks like the European Central Bank will raise interest rates by another half a percent at its next meeting on March 16, and may even make a similar increase at the next meeting.

After a slow start, the ECB has now raised interest rates by 3 percentage points since last July.

Moreover, these latest increases have dashed any lingering hopes that the ECB would interrupt the current tightening. In fact, projections are now for 4 percent by the end of the year.

If there was any doubt about the direction, they were patted on the head by Philip Lane, the bank’s hardline chief economist, who said in an interview yesterday that the rate hikes will not stop until it is certain that price growth returns sharply back to 2 percent.

Lane, however, suggested there was some light at the end of the tunnel, saying there are signs that tighter monetary policy is working its way through the economy, driving down prices of services and other core goods – apart from fuel and food prices which are more fleeting. Still, Lane predicts they’re on their way down.

We’ve seen how volatile here in the UK. Kantar’s latest figures show that food prices have risen by no less than 17.1 percent in the past four weeks.

Prices for eggs, milk and butter are still rising. Kantar estimates food store bills will be £811 more this year unless consumers cut costs.

But where can they cut costs? With taxes going up in the upcoming budget, along with another rate hike likely this month by the Bank of England, many households will be wondering what else to cut.

Burdensome problem

It’s a question that should keep Jeremy Hunt up at night. The chancellor has a tricky balancing act ahead of him when he hands over his budget the following week.

On the one hand, public finances are nowhere near as bad as forecast, with up to £56bn of so-called room for maneuver.

On the other hand, Hunt seems determined not to give too much away in his obsession with sticking to forecasts well past their sell-by date.

But the danger is that by raising taxes now – especially on business – he will strangle what little confidence is returning to the economy.

If he needs convincing, he should talk to CBI economist Alpesh Paleja, who warns that the double whammy of higher corporate taxes and the end of the super deduction will devastate business investment.

The latest CBI figures show that private sector activity has now declined for the past seven consecutive quarters.

More pertinently, manufacturing output in the past quarter fell at its fastest pace since September 2020, though likely to grow again.

Looking ahead, activity is expected to decline again in the next quarter at a similar pace to the past three months.

Why should you, as Chancellor, be so tone-deaf? Still, there’s leeway for Hunt to make some tweaks.

Either cancel or reduce the increase in corporate income tax, or extend the super deduction and cancel the reduction in the R&D withholding tax credit. There must be something to give. Nytol is not the answer.

Do not deliver

AJ Bell’s Russ Mold describes Ocado as “so much promise and so little joy.”

The question is, will the promise ever bring joy? Probably not, as it’s hard to see how the online distributor will ever make money.

Unfortunately, it may turn out to be one of those great ideas for which the time will never come.