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French Consumer Morale Lowest in More than 20 Years

French consumer confidence fell to its lowest in more than two decades in February as accelerating inflation made households less inclined to make big-ticket purchases, national statistics office INSEE said on Thursday.

There was little sign inflation would subside any time soon since producer prices, a gauge of pipeline price pressures, rose at their fastest annual pace in more than seven years in January as foodstuffs and energy became more expensive.

Coming little more than a week before the first round of municipal elections, such data highlights the public relations headache facing President Nicolas Sarkozy.

His promises to boost voters' purchasing power helped him win office in 2007 but opinion polls show his popularity has since slumped as households have grown impatient for results.

"There's a nice correlation between consumer confidence and Sarkozy's popularity but, more seriously, the real issue is inflation," said Gilles Moec, senior economist at Bank of America in London.

"People had hoped for a lot from the new president and he hasn't delivered on inflation, even though its mostly not his fault because it's down to a shock on food and oil."

Household Gloom

Consumer confidence fell to minus 35, its lowest since the comparable series began in 1987, from minus 34 in January, bucking consensus forecasts of an unchanged reading.

A component measuring views on whether it was a good time to spend fell to minus 26, its weakest since May 1997.

Households' gloom about the health of the economy may also have been compounded by the rise in the euro, which hit record highs above $1.51 this week, since difficulties such gains pose for French exports, and therefore growth, have been in the limelight.

French chemicals company Rhodia on Thursday predicted growth in 2008 after restructuring but added the group faced "substantial headwinds from unfavorable foreign exchange and escalating raw material and energy costs."

A strong euro helps to cushion the impact of the price rises in raw materials denominated in dollars but surging food and energy costs are nevertheless feeding through.

Producer prices rose 0.5 percent in January compared with the previous month and were up 4.9 percent from a year earlier, with sharp rises in the price of agricultural and energy products driving the increase, INSEE said.

With major food groups such as Danone and Nestle tending to pass on higher costs to consumers, economists expect little let up in the price pressures facing French households.

"I think that consumers are particularly worried about the sharp rise in food prices, all the more so as upward pressures on food are there to stay," said Tullia Bucco, economist at Unicredit in Milan.