French July Consumer Confidence Declines to Record

By Helene Fouquet

July 29 (Bloomberg) -- Consumer confidence in France fell to a record low in July as inflation accelerated to the fastest pace in 12 years, eroding households' purchasing power.

A gauge of consumer sentiment dropped to minus 48, the lowest since the index was introduced in 1987, from minus 46 in June, the Paris-based national statistics office, Insee, said in a statement today. Economists expected a decline to minus 47, according to the median of 20 forecasts in a Bloomberg News survey.

``Inflation is the number one burden weighing on households' confidence,'' Jean-Christophe Caffet, an economist at Natixis in Paris, said in an interview on Bloomberg Television. ``We did not see any reason for confidence either to stabilize or to improve in these circumstances.''

As prices for food and energy rise, consumers have less disposable income, damping domestic demand. A decline in household spending, which accounts for 57 percent of gross domestic product, would weaken an economy set to grow at the slowest pace since 2003 this year as a global slowdown erodes export sales.

Europe's largest economies have shown signs of slowing since the end of the first quarter. Consumer confidence fell to the lowest in more than five years in Germany, GfK AG, the Nuremberg- based market-research company, said yesterday. In Italy, it slumped to the lowest level in 15 years.

`Sharply Weaker'

``The Germans and the French both have to face even higher inflation and sharply weaker economies,'' said Gareth Claase, an economist at Royal Bank of Scotland Plc in London.

France's economy, the third largest in Europe, is expected to expand about 1.6 percent this year, according to Insee.

Inflation in France accelerated to 4 percent in June, the fastest pace in more than 12 years, based on a European Union harmonized method, Insee said.

``Inflation is the key driver,'' Claase said. ``Inflation has been above 3 percent for seven months, but a weaker economy and falling equity markets are also eroding confidence.''

The European Central Bank raised the main interest rate a quarter point this month after the inflation rate in the 15-nation euro region rose to 4 percent, the highest since 1992. Faster inflation is making it difficult for the ECB to cut borrowing costs even as growth slows across the region's economy.

French consumer spending, which accounts for about 15 percent of retail sales, fell in June, prompting retailers to reduce annual targets for profit and sales. Business confidence fell to the lowest in more than three years in July.

`Worse'

``Since last month things have definitely become worse,'' Claase said. ``We expect French inflation of 4.1 percent in June.''

A gauge of people's outlook for their personal financial situation rose to minus 21 from to minus 23. An index evaluating the outlook for the standard of living in France fell to minus 60 from minus 57.

France's Parliament passed a package of measures on July 23 to spur growth, boost entrepreneurship and intensify competition among retailers to cap prices increases. The measure also allows more seasonal discounts to spur spending.

To contact the reporters on this story: Helene Fouquet in Paris at Hfouquet1@bloomberg.net.