But where did inflation go? Economists asked not long ago. They now have the answer: it exists. Well there.
In May, consumer prices rose 5.2% in one year in France. High rate, very disabling for the most humble families and small savers, but nonetheless it remains in the realm of deja vu. Because France has experienced similar inflationary periods in the past, and much more important than that.
In recent decades, inflation has slowed
Admittedly, during the recent period, inflation in general has been low in developed countries, especially in France. Since 1992, except for a peak of 3.6% in the spring of 2008, the one-year inflation rate has not exceeded 2.5% in France.
“Inflation has remained moderate on average with a few peaks depending on the economic situation”summarizes Hervé Bellero, an economist at the French Office of Economic Conditions (OFCE) who specializes in inflation issues.
Why this slow inflation in recent years? Because globalization tended to lower wages (and prices of some products were affected), because activity and growth were weaker than in the past, and because oil prices fell sharply in certain periods.
The oil shocks caused inflation to rise
But the modest inflation rates of the 2000s should not make us forget that, as the following chart shows, inflation may have been much higher in the past.
In the early 1980s, the French saw prices rise by more than 13% in one year. It is noteworthy that this episode had the peculiarity of occurring a few years after the first oil shock, which at the end of 1974 caused the inflation rate to rise to almost 15%.
“The oil shocks had a much greater impact on inflation than they do now”explains Hervé Bellero. Industry was prevalent in France at that time. However, they are more sensitive to energy than services. At that time, what we call the price-wage loop was created, where wages interact with inflation to restore purchasing power. So there was an inflationary process that started.”.
It is a process that has started little during the current episode, as wages are no longer linked to inflation and wage increases granted by employers remain modest for the time being.
The Glorious Thirties Structural Inflationary
INSEE data also show a structurally higher level of inflation in the 1950s, 1960s, and 1970s.
“It was a very inflationary period because there was a lot of activity, the economy was catching up and there were demands on wages”summarizes Hervé Bellero.
Moreover, some policy decisions, such as the devaluation of the franc, may have caused certain inflationary spikes. This was especially the case in 1958, when the one-year price hike reached 18%.