French Government Warns Low Inflation Has Created A 'Shock' And Now They're Going To Miss Their Budget Targets

French Finance Minister Michel Sapin has warned the government won’t be able to meet its goal of $US21 billion in savings because inflation is too weak.

Consumer price increases excluding tobacco in France have slowed to 0.4%. Overall Euro zone inflation recently fell to 0.3%.

“The inflation figures in the Euro zone have created a shock,” Sapin told AFP in an interview. “We need a new discourse among political and economic actors. We must immediately take this into account as decisions get made.”

The normal policy levers used to fix growth have broken down, Sapin said.

“The textbook is quite flexible in cases of recession or weak growth, but now we’ve discovered another matter that is just as destabilizing for budgets as weak growth, which is weak inflation,” he said.

The government had been seeking to defer 1.5 billion Euros in spending on an assumption of 1.5% inflation, mostly through benefit freezes. Now, Sapin said, those reserve outlays are likely to be reevaluated.

“Adding to deferred spending doesn’t seem well suited to the situation,” he said.

The French government recently collapsed after former economic minister Arnaud Montebourg criticised President Francois Hollande for spending aggressively enough to revive demand.

Sapin will present his budget to Prime Minister Manuel Valls in three weeks.

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