French Inflation to Accelerate in 2008, Minister Lagarde Says

By Vidya Root


Jan. 5 (Bloomberg) -- The pace of inflation in France will quicken in 2008 relative to last year, fueled by higher prices for oil and commodities, French Finance Minister Christine Lagarde said.

``We will without a doubt have more inflation in 2008 than in 2007,'' Lagarde said in an interview today with France Info, a Paris-based radio station.

The 70 percent increase in oil prices over the past year pushed France's inflation rate to the highest in more than three years in November. French consumer prices rose at an annual rate of 2.6 percent in the month, up from 2.1 percent in October, Insee, the Paris-based national statistics office, said Dec. 13. Crude-oil prices reached a record $100.09 on Jan. 3 in New York.

``There is imported inflation because of factors that are external, like the increase in the price of oil and commodities,'' Lagarde said. ``I doubt the price of oil will fall in 2008. The same goes for agricultural commodities. Global demand remains strong and we can't stop the Chinese and Indians from seeking more to meet their growing needs.''

Rising inflation has overshadowed tax cuts by President Nicolas Sarkozy. Consumer confidence in France unexpectedly dropped to a 19-month low in December, Insee said yesterday. The December reading was the lowest since May 2006.

Higher gasoline and foods costs have already had an impact on consumer spending. Retail sales fell for a third month in December and purchasing of manufactured goods, which accounts for about 15 percent of the economy, dropped 0.1 percent in November.

The French economy may expand 1.9 percent in 2008, lagging behind the euro region's expected 2.2 percent growth rate for a third year, according to European Commission forecasts.

Lagarde said she held meetings in November with oil producers and distributors on how they pass on higher prices.

``A decline in prices will be passed on immediately, while producers and distributors will wait for four weeks before passing on an increase,'' she said, adding that the government remains ``extremely vigilant.''