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the risk that the remedy will make the disease worse

It’s hard to find a sector that has no difficulty in recruiting. The report drawn up by Geoffroy Roux de Bezieux on Wednesday June 1 on Franceinfo is final. The Medef boss admits: “I think salaries will be reviewed because we can’t hire. The law of supply and demand has shifted in many branches in favor of employees”.

An unusual phenomenon which is partly explained by inflation for several months. According to an initial estimate from INSEE on Tuesday, the rise in prices once again accelerated in May: +5.2% over one year (against +4.8% in April), a record since 1985. At the pump, in stores and on heating bills… the rise in prices is general and affects the purchasing power of households, which fell by 1.9% in the first quarter and should continue to decline. As a direct consequence of this tumble, consumption, the traditional engine of French growth, has fallen even more markedly than previously forecast by INSEE. It fell 1.5%, compared to a drop of 1.3% previously estimated. Concretely, inflation could lead to an average additional cost of 90 euros per month for households, according to a study by the Inflation Observatory of the magazine 60 million consumers and the NielsenIQ institute. So much money that the French will not spend, to the chagrin of companies which, despite order books still in good shape, are seeing their sales decline. ” This inflationary surge is paralyzing everyone and trade is impacted”notes Eric Chevée, vice-president of the Confederation of Small and Medium-Sized Enterprises (CPME), in charge of social affairs.

Aware of the consequences of low purchasing power, the new government has made it its priority. He thus promised, from the past legislative elections, a vast law including, among other things, the extension of the “tariff shield” until the end of the year (against June as had been decided previously), a rebate on the fuel prices, or even a food check and the re-indexation of pensions from July. “everything cannot rest on the shoulders of the State”, nuanced the Minister of the Economy, Bruno Le Maire, on Monday. ” The fight against inflation must be led by all. Companies – and some are already doing so – can also participate, by mobilizing value-sharing tools such as the Macron bonus, participation or profit-sharing.. The previous week, he had also urged companies that can to raise the wages of their employees. This is also what is practiced with the minimum wage. The minimum wage is indeed indexed to inflation according to an automatic revaluation mechanism enshrined in the law and has, in fact, been raised by 2.65% on May 1, taking inflation into account.

“Price-wage loop”

Raising workers’ wages would thus allow them to consume more from companies that strengthen their financial health. The bet seems won in advance. And yet… To this virtuous circle corresponds another system which could well increase inflation if not reduce its effects. This is called “the price-wage loop” or Phillips curve”. When a company increases the salaries of its employees, it increases de facto its production costs which it must then pass on to its selling prices so as not to reduce its margins.

Faced with rising prices, workers again demand wage increases and the pattern repeats itself.explains Sylvain Bersinger, economist at Asters, who adds: “ It is not so much the rise in wages that poses a problem as the establishment of this mechanism.

In France, this phenomenon was observed in the 1970s. The two oil shocks in 1973 and 1979 caused energy prices to rise, leading to inflation of up to 10%. Faced with soaring prices, the Smic, indexed to inflation, had been revalued several times a year. In addition, all wages had been increased significantly from the start of this crisis.

It is this inflationary spiral that the United States also fears, where companies that are struggling to recruit are forced to raise their salaries, causing the hourly rate to rise to 5.5% over one year. Especially since if inflation penalizes households, it also weighs on the accounts of companies, some of which have already reduced their margins. ” They are also very strongly impacted by the rise in energy prices, but also by those of all raw materials, and even by the cost of services, which are also starting to increase,” recalls Eric Chevée.

A longer term risk

The vice-president of the CPME nevertheless admits that companies are forced to push wages upwards.

There is, at the same time, an upgrading on open positions and another internally so as not to lose skills”. But he warns of the consequences of ” a systematic response to rising prices through a general increase in wages”. It’s necessary “find a solution that answers the question of purchasing power in a more temporary than permanent form so as not to increase inflation” and fall into the “price-wage loop”, he points out.

However, the immediate risk of such a situation seems to be ruled out, according to Sylvain Bersinger who specifies that ” vsIt is not so much a one-off wage increase that would pose a problem as its repetition”. SAccording to him, if the risk is real, this is currently not the case. It would take several months, even a year, to observe such a phenomenon and see its effects. The economist also points out that recent figures from INSEE, attesting to a contraction in GDP of 0.2% in the first quarter, show that “the French economy is seriously starting to stall”. ” If we fall into recession (two consecutive quarters of falling GDP), this will deteriorate the job market and we risk seeing unemployment rise again”he warns.

And to conclude: We are in a situation where there is no miracle solution.. One thing is sure, “We have to bear the cost of this inflation which continues to climb. Either it is households with a drop in purchasing power, or it is companies which increase wages but see their margins fall, or it is the State which finances measures through its budget.. Probably all three at once.