French June Consumer Confidence Drops to Record Low

Consumer confidence in France fell to a record low in June as the fastest inflation in 12 years eroded households' purchasing power, reported The Bloomberg.

A gauge of consumer sentiment dropped to minus 46, the lowest since the index was introduced in 1987, from minus 42 in May, the Paris-based national statistics office, Insee, said today. Economists polled by Bloomberg had expected the index to remain unchanged, according to the median of 21 forecasts.

Growth in the French economy is deteriorating as inflation and surging oil prices squeeze household budgets and push up production costs. Weakening growth adds to the dilemma facing the European Central Bank as it prepares to raise interest rates next week to fight inflation, a move that may exacerbate the slowdown.

``The inflation story is not over yet,'' said Sebastian Wanke, an economist at Dekabank in Frankfurt. ``Inflation -- and the so-called felt inflation -- is still hurting purchasing power to an extent not seen for a long time.''

Insee last week predicted the French economy would grow 1.6 percent this year, the slowest pace in five years, as rising prices damp consumer spending and the housing market contracts. Bank of France Governor Christian Noyer said yesterday the expansion may be between 1.5 percent and 2 percent this year, down from 2.2 percent in 2007.

Consumer prices climbed an annual 3.7 percent in May, Insee said earlier this month, matching the rate for the euro region for the month.

A gauge of people's outlook for their personal financial situation declined to minus 23 from minus 19. An index evaluating the outlook for the standard of living in France fell to minus 57 from minus 50.

``The French can feel the economic situation through the labor market that's less dynamic than a few months ago,'' said Rene Defossez, a strategist with Natixis in Paris.

The slump in French confidence mirrors the decline in European optimism. European consumer confidence held at almost a three-year low in May and a report tomorrow is expected to show a further decline this month, according to the median forecast of 16 economists surveyed by Bloomberg.

Euro-area manufacturing and service industries contracted in June and higher credit costs are also depressing housing markets from Spain to Ireland and weighing on confidence.

To lift morale among French consumers, President Nicolas Sarkozy is planning to introduce tax breaks for companies that distribute a bigger share of their profit to employees, loosen retail rules to boost price competition, and increase energy subsidies for impoverished households. Retailers also are counting on government-regulated, seasonal discounts, which started yesterday, to spur spending.

``Customers have become more selective and delay some of the purchases,'' Paolo de Cesare, chairman of the Printemps stores chain, said in an interview yesterday. ``The last months have been slower than last year.''