France takes aim at inflation by subsidising utility bills at a cost of €15bn so far

French electricity bills would have risen by 45% this year, rather than by only 4% under the French government's current price shield, new figures show

French president Emmanuel Macron warned the French people there were tough months ahead.

The French government's decision to heavily subsidise electricity and gas bills of households and businesses is working to help push down the country's inflation below that in Ireland and Germany, but at a high cost of at least €15bn this year.    

In a new analysis, Capital Economics, said the French energy regulator figures show that French electricity bills would have risen by 45% this year, rather than by only 4% under the French government's current price shield.  

That means that inflation has risen less in France than it has in the other large eurozone economies. Eurostat figures published last week showed French consumer inflation, as measured by the EU-wide harmonised measure, was running at 6.8% in July, significantly below Germany's 8.5% rate, and Ireland's 9.6%, and the 8.9% rate for the eurozone as a whole. 

The French government has taken an aggressive policy to fighting inflation through subsiding energy bills, which have in recent mounts accounted for more than half the inflation in many other European countries.

In Ireland, business groups are analysing, ahead of next month's budget, the amounts that other governments are putting aside to subsidise gas and electricity bills, warning that small firms will not be able to cope with soaring energy costs this winter. 

"The key reason why energy inflation has been lower in France is the tariff shield introduced last autumn," said Jessica Hinds, chief Europe economist at Capital Economics. 

"Households on regulated electricity and gas tariffs will see their electricity bill rise by no more than 4% in 2022 and the gas bill is frozen at its October 2021 level until December 2022," Ms Hinds said. 

The cost to the exchequer is significant, however. 

"On current government estimates, the freezing of gas prices between November 2021 and the end of 2022 will cost around €7.5bn, while curbing electricity bills this year will cost a similar amount" even before accounting for an estimated €10bn financial hit taken by huge utility EDF, Ms Hinds said. 

On Wednesday, President Emmanuel Macron said there were tough months ahead as "freedom has a cost". In the coming weeks, his government will have to decide whether to renew price caps on electricity and gas at the end of the year.