As regards economic fundamentals, between the first quarter of 2016 and the second quarter of 2017, the unemployment rate fell by 0.6pp in France, against 0.9pp in the euro area. Thus, the differences in labour market conditions explain 0.3pp of the core inflation gap (see green bars of Chart 3).
Moreover, since 2003, the core inflation of the euro area has been on average 0.1pp higher than that of France (see contribution of the constant to the core inflation gap between the euro area and France, Chart 3). Part of this difference stems from the change in the price of electronic appliances included in the sub-component "industrial goods" of core inflation, which diverges considerably between euro area countries. A difference in the way national statistical institutes process the "quality effect" of electronic appliances could explain this divergence. Furthermore, since 2008, the measures implemented under the National Objective for Health Insurance Spending (ONDAM) tend to increase the use of generic drugs in France, which are less expensive. This therefore also contributes to bringing down inflation in France.
The rest of the core inflation gap observed in the second quarter of 2017, i.e. 0.2pp, can be attributed to temporary shocks (see grey bars, Chart 3), and in particular to the temporary decline in the price of communications observed in France since the first quarter of 2017.
This gap could persist in 2018
When the impact of the decline in communications prices as of Q1 2017 ceases, core inflation in France is expected to move closer to that obtained by the Phillips curve, which would contribute to reducing the inflation gap between the euro area and France.
However, other specific factors, such as the reduction in social housing rents approved at first reading by the National Assembly, could have a negative impact on core inflation in France as of 2018, and could thus slow down the convergence of French core inflation towards that of the euro area.
Moreover, the unemployment rate is expected to fall in France and in the rest of the euro area, but probably without changing the unemployment gap between France and the euro area as a whole. Consequently, the core inflation gap could persist in 2018.