Will the government’s “anti-inflation” food basket be effective?

Will the governments anti inflation food basket be effective

This is a new emergency measure that has been added to the government’s arsenal to deal with inflation. It concerns, this time, “consumer” products purchased in supermarkets. While food prices have already increased by 12 to 14% in one year – a trend that should continue in 2023 – the government has announced in The Parisian then confirmed on January 15 to AFP that an “anti-inflation basket” is under study. The idea would be “about twenty basic necessities, which large retailers would undertake to sell almost at cost price”, thus indicates the Ministry of Commerce. “It goes from baby hygiene to adult hygiene, dairy products, fresh products, pasta…”, specifies the ministry of Olivia Grégoire.

This basket, which concerns only about twenty products out of nearly “20,000 to 30,000 references in store”, should not excessively penalize the margins of distributors, underlines the government. But under these conditions, will this boost have a real impact on the purchasing power of the French, or is it likely to be anecdotal?

Poor quality products

For the professor of economics at NEOMA Business School, Nicolas Béfort, “if it only concerns about twenty products as announced for the moment, the measure risks being only symbolic”. The idea is inspired by the “housewife’s basket” set up by the Greek government in November, to relieve families in difficulty thanks to reduced prices. “In comparison, this one is made up of 51 products. And even then, we don’t yet know if it has a concrete impact for households,” explains the economist.

Many questions remain unanswered regarding the composition and implementation of the French anti-inflation basket. “Is each distributor going to be able to choose which products, and which range of products will be affected by a price drop?” Asks Nicolas Béfort again. “Of course, a reduction in prices can help the most disadvantaged families. But in this case, it would be taking the risk of ending up with very low quality products,” said the economist. To overcome this discriminating effect, “it would be interesting for the government to demand lower prices on sustainable, French and organic products, he suggests. This would make responsible and healthy products accessible to all populations. “.

The margin of action is very small for distributors

According to the ministry, which specifies that the discussions with the brands are only at their “beginnings”, the establishment of this basket is not, moreover, intended to be imposed by law. Rather, it would rely on the goodwill of distributors, whose room for action is already very limited. “Brands will not be able to go above the law, which prohibits them from lowering prices below the resale price at a loss of + 10%”, warns the professor of economics from the University of Paris-Diderot, Philippe Moati. “However, many brands have already reached this limit, by lowering their margins on everyday products as much as possible to support consumers, by countering the rise in the price of products among manufacturers, who are themselves victims of inflation. the price of raw materials and energy”, he explains.

For the creator of the Society and Consumption Observatory (ObSoCo), the effect of the “anti-inflation basket” risks being both anecdotal and temporary. “This may allow the price of some products to go down a step. But inflation is like an escalator: it will continue to rise for a while and, with it, the price of production of produced by manufacturers. Distributors will not be able to do anything about it”. Many brands have also already created their basket of products at reduced prices, further points out the researcher.

The risk of the threshold effect

This attempt to cap food prices is reminiscent of the “tariff shield” put in place since 2021 by the government, to reduce the vertiginous prices of electricity and gas for households and certain businesses. “In the long term, this type of measure carries a risk: that of the threshold effect”, believes Nicolas Béfort. “The caps are intended to be temporary. But when the discount ends, we end up with prices that have increased by several tens of cents per product, which is very difficult for households to absorb all at once” , he explains. Why, then, not wait for a drop in prices to remove these mechanisms? “We could, but that would not be good news. It would mean that we have entered into deflation, which is even more serious for the global economy”, explains the researcher.

The arrival of the “anti-inflation” basket is announced in a social and economic context of strong tension. “The government is caught between announcements on pension reform, and very difficult annual negotiations between manufacturers and distributors, who fight to find out who will have to make an effort and reduce their margins”, summarizes Nicolas Béfort. A bill launched by the majority in early January, which would leave manufacturers the freedom to impose their prices in the event of no agreement with the brands, sparked a revolt among distributors’ associations. Nine brands (Auchan, Carrefour, Casino group, Cora, E.Leclerc, Intermarché, Lidl, Netto and Système U) denounced in a press release a law which would “dramatically and sustainably” fuel the rise in prices.

The return of food vouchers to better target consumers?

“This type of measure has the defect of being a very temporary solution, with no long-term effect”, concludes Nicolas Béfort. A lasting and structural solution to get the French out of the effects of inflation, according to the specialist: “the revaluation of wages, which would improve everyone’s living conditions and relieve government finances”. Except that “many companies are also put in great difficulty by the colossal increase in the price of raw materials and energy”, judges Philippe Moati. “And they too are now asking for help from a government that is reaching the end of its support capacities, and of indebtedness,” he said.

Faced with inflation which “should continue to increase during the first half of 2023, before declining”, “the only solution for the government will be to very specifically target the populations to be supported”, affirms Philippe Moati. On food, the prices of which should continue to rise for several months, “one of the solutions could be to put the food voucher back on the table, which had been mentioned several times but never implemented. This would support the most disadvantaged classes in a much more efficient way”, indicates the professor. In any case, he admits, “the year 2023 will be a bad time to pass”.