The rebound in inflation could erode household purchasing power, warns the OFCE

The rebound in inflation in the context of war in the Middle East could weigh on household purchasing power, which could experience its sharpest decline this year since 2013, according to forecasts from the French Economic Observatory (OFCE) published on Wednesday, April 8.

The OFCE presented its macroeconomic projections for France and internationally a few hours after US President Donald Trump announced a two-week truce in the war between the United States and Iran.

In 2025, despite budgetary uncertainty, the French economy was rather "resilient" and French growth did not collapse, summarized Mathieu Plane, economist at OFCE.

Not spared from negative shocks in 2026, French gross domestic product (GDP) growth is expected to reach 0,8% this year, then 1% in 2027, according to the OFCE.

In 2026, growth would be reduced by 0,2 points of GDP due to rising hydrocarbon prices, in an intermediate scenario, while the effort to consolidate the budget would weigh it down by 0,5 points of GDP.

The uncertainty generated by the political instability since the dissolution of the National Assembly is estimated by the OFCE to cost 0,2 percentage points of GDP in 2026. However, the public deficit is expected to continue to decrease to 4,8% in 2026 after reaching 5,1% in 2025, the observatory explains.

In the event of an escalation of the conflict in Iran, with a sustained rise in hydrocarbon prices, the growth forecast would fall to 0,4% in 2026 and 0% in 2027. This darker scenario would mean "that we have no more growth, or even a marked risk of recession", warns Mathieu Plane.

Inflation, which had fallen sharply in recent years, is expected to rebound in 2026 due to the "sharp rise" in hydrocarbon prices and will reach an average of 1,8% for the year, or even 3,2% in a more pessimistic scenario.

According to the economists' "central" scenario, purchasing power would decline and contract in 2026 (-0,7% per consumption unit).

This is the "worst figure since 2013 (...) Not because the energy shock is stronger than in 2022", but because "there is no longer a support mechanism, no buffers", explains Mathieu Plane.

Despite this purchasing power effect, consumption would progress slowly, supported by a moderate decline in the savings rate (17,9% to 16,9%), which nevertheless remains well above the pre-Covid-19 pandemic average.

Illustrative image of the article via Depositphotos.com.