Financial thoughts

French consumer spending on manufactured goods declined more than economists forecast in March, as accelerating inflation undermined households' purchasing power.

Spending by consumers, which accounts for about 15 percent of the economy, fell 1.7 percent from February, when it rose a revised 1.3 percent, Insee, the Paris-based national statistics office, said today. Economists expected a 0.2 percent drop in March, the median of 33 estimates in a Bloomberg News survey showed.

“We can see how rising prices are hardening purchasing behaviors outside of food consumption,'' said Jean-Christophe Caffet, an economist at Natixis in Paris. “Almost all the consumption sectors fell. Tightening loan conditions are worsening households' situations.''

Surging food and energy prices pushed euro-area inflation to 3.6 percent last month, the fastest pace in almost 16 years, underscoring the European Central Bank's reluctance to lower interest rates. Inflation in France, the second-biggest economy among the 15 nations that use the euro, accelerated to 3.5 percent, the highest since 1996, when Insee started reporting the data.

“Our big problem is to make sure that inflation falls back below 2 percent next year,'' ECB Governing Council member Christian Noyer, who also is Bank of France governor, said yesterday in an interview on RTL radio. “We'll do what it takes for that,'' he said, adding that “if needed we'll move rates.''

`A Bit Optimistic'

The French government expects the economy to expand 1.7 percent to 2 percent this year, a forecast Noyer calls “maybe a bit optimistic.'' The ECB sees growth “somewhere between 1.5 percent and 2 percent, maybe close to the lower end of the range,'' Noyer said cash till payday.

Du Pareil au Meme SA, France's largest publicly traded maker of children's apparel, said the first quarter “ended with difficulties, in particular in France and Italy, where the climate and the general gloom have weighed on business.''

Spending on cars fell 1.5 percent from the previous month after a 7.5 increase in February, and increased 8.7 percent from the year-earlier month, Insee said. Textile and leather goods slid 7.9 percent, following a revised 1.4 percent rise in February. From March of last year, they declined 6.9 percent.

Household goods slipped 0.7 percent last month after February's 0.2 percent drop. From March last year, they added 7.9 percent.

“With the inflation and the deterioration of the conjuncture, we can see that households are starting to save more again,'' Caffet said.

Consumer spending rose 1.2 percent in March from a year earlier, today's report showed. It increased 0.6 percent in the first quarter after a 0.1 percent drop in the last quarter of 2007.

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