With looming elections and a draft budget that aims to address a €305.7bn financing requirement, French households are increasingly in the red. Will wages ever manage to outpace energy inflation?
Against a backdrop of global conflict, ongoing energy shocks, disrupted trade flows and heightened political tensions in the run-up to landmark elections, financial markets continue to reverberate as governments attempt to manage deficits while curbing inflation. But it isn’t just central bank monetary policy that is having to pivot. France itself is navigating a purchasing power crisis that is affecting households in very real terms, with consequences that extend beyond short-term impact to cost-of-living.
As French Prime Minister Sébastien Lecornu on Thursday addressed the Council of Ministers with his draft budget for national spending across 2027, the question is whether France can endure short-term pains in exchange for longer-term protections.
What is purchasing power?
Purchasing power relates to the monetary value assigned to a particular commodity. In a healthy economic environment, it grows steadily as wage increases outpace low, stable inflation. Consumers are able to pay for items without draining savings. Meanwhile modest price increases encourage spending and investing – and crucially – buying power remains intact.
However, figures published on September 30 by France’s National Institute of Statistics and Economic Studies (INSEE) present a concerning landscape. The statistics detail how overall consumer prices – as measured by the Consumer Price Index (CPI) – have risen by 3% year on year. This means that the price paid by a French household for goods in September 2026 is now 3% more expensive than it was a year ago. As these price increases occur at a higher rate than wage increases, household purchasing power is diminishing in tandem, with French citizens rendered poorer even if their nominal income stays the same.
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The numbers show that France is set to endure a second consecutive year of decline in purchasing power and is likely to replicate the drop of 0.7% experienced in 2025. Research conducted by the French Institute of Economics (IFE) and published by French daily Le Monde suggests this equates to a loss of €1,200 per year for a family of two adults and two children.
“There is no easy way out of this situation,” explained Senior Economist at ING Economic Research, Charlotte de Montpellier.
France has only ever experienced similar scenarios twice prior, during the “austerity turn” of Socialist president, François Mitterrand in 1983, and during the period immediately following the 2007 Global Financial Crisis.
“With such a big hole in the budget, such a big increase in (interest) rates, the cost of borrowing money for funds has increased a lot and the impact on people is negative … every economic factor is negatively impacted by the current situation,” Montpellier said.
The country’s budget deficit stood at 5.1% of Gross Domestic Product (GDP) in 2025 – meaning French spending exceeded revenues by an amount equivalent to 5.1% of GDP during the year – well above the eurozone’s 3% target limit. With deficits limiting fiscal capacity to support households or stimulate growth, Lecornu aims to reduce this year’s deficit projection, which currently stands at 5.4% to 5% in 2027, through a series of belt-tightening measures.
What is driving the drop?
External factors are largely responsible for consumer toil, with energy inflation constituting the dominant driver. Energy prices have increased by 21.2% year to date, propelled by petrol products and gas. Meanwhile, food inflation also continues to accelerate, especially for fresh produce.
In an interview published on September 30 via the European Central Bank (ECB), President Christine Lagarde acknowledged how Russia’s invasion of Ukraine had worsened the energy crisis and inflation surge, adding, “The main threat today is the energy crisis related to the conflict in the Middle East. It is clearly weighing on prices, but also on growth.”
Last week French President Emmanuel Macron wrote to EU Commission leader, Ursula von der Leyen, urging Brussels to take action to lower energy prices across the bloc, which have elevated significantly following the raging conflict across the Middle East, alongside Ukraine’s attacks on Russian diesel refineries.
However, given that energy inflation is initially caused by a shock to supply, it is an issue that monetary policy cannot immediately address. Governments and central banks cannot produce more raw materials, nor can they reopen disrupted shipping routes or instantly reverse geopolitical supply constraints.
“The current environment is challenging,” explained Stéphane Colliac, head of Advanced Economies at BNP Paribas. “It’s largely driven by the situation in Iran and the subsequent energy crisis, but the general public is aware that these are external factors that are difficult for governments to contain.”
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But public entities can at least influence how far the shock travels.
High interest rates can curb inflation by reducing demand. As borrowing becomes more expensive, households typically spend less and businesses invest less. However, this fiscal policy comes with a trade-off: it reduces disposable income and discourages growth, worsening the purchase power squeeze even when it fights price pressures.
Social support
According to figures cited by Le Monde, since 2019, prices have risen by 21.3% while wages have only risen by 18.7%, causing households to feel the pinch long before recent escalations in geopolitical tensions or energy supply shortages.
And until recently, France’s social and labour-market dynamics helped cushion the shock. Higher employment, social transfers and income from financial assets helped to offset some of the erosion experienced by the household wage. But with significant public debt, public support is tightening.
“Consumer confidence and behaviour is not directly linked to the budget. The main issue is the wage – people are earning the same but are not getting the benefits of social spending,” said Colliac.
He explained that as the minimum wage is indexed – i.e. it tracks inflation – and therefore it is actually those with the lowest income that are least impacted from a wage perspective, at least. Indeed on Tuesday, civil servants all over the country went on strike in a show of discontent around wage freezes in the public sector.
The way out
Although France may consider leaning on policy tools that reduce bills for exposed households while preserving fiscal discipline – such as cutting VAT on energy, freezing rent or capping prices, there is a question around how much fiscal space remains and how quickly measures can be delivered.
Colliac said that given the aim to reduce the government deficit to 5% in 2027 is itself ambitious but admirable, the best approach would be consolidation – with households aiming to take a proactive, self-initiated approach, even through very small steps such as transport sharing.
He said that the budget proposal seems reasonable in the context of trying to make process within the limits of a calendar year and that getting public debt down to 5% would be an achievement.
“The only way out of this is also growth,” said Montpellier.
She explained that regardless of divisive political opinion among the parties going to the polls in May next year, it would make sense in the context of a somewhat divided government landscape – and given that there is currently no absolute majority in Parliament – to push ahead with the new budget draft as a means of damage control.
“I think most of the parties would prefer to press ahead with implementing this budget and then to redo it when they are elected, than have no budget at all.”
Without pushing ahead, she explained, the likelihood would be that both the budget deficit and household purchasing power would worsen between now and the elections.
“At that point we would be in a very, very difficult situation.”
