Bank of France blames inflation on tobacco taxes

The Bank of France said today big tobacco tax rises were having a major inflationary impact in France, which was losing its reputation…

The Bank of France said today big tobacco tax rises were having a major inflationary impact in France, which was losing its reputation as one of the best anti-inflation performers of the euro zone.

In a monthly bulletin, the independent central bank said: "France's performance remains less satisfactory than the euro zone. Rises in indirect taxes are likely to continue in the coming months with a strong inflationary impact."

It noted that tobacco retail prices were set to increase again in January 2004.

It said two tobacco tax rises so far this year had already pushed up cigarette prices by 10.8 per cent in January and another 17.5 per cent in October.

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The second price rise in itself was responsible for more than a half of a percentage point (0.6 percentage points) of the rise noted in the November report from statistics office INSEE.

INSEE's latest consumer price index showed that prices stood 2.5 per cent higher in November than a year earlier when measured according to standards harmonised throughout the European Union.

Inflation in France had been lower than in other euro zone countries from 1991 to 2002, except for mid-1995 to mid-1996 when a previous conservative government increased value-added tax rates by two percentage points, the Bank of France said.

"But since the beginning of 2003 the year-on-year trend in HICP (EU-harmonised consumer price index) has caught up and even overtaken the euro zone," the bank said, noting that the 2.5 per cent noted in November compared to 2.2 per cent in the euro zone.

Tobacco tax was highlighted in particular but the Bank of France also cited rising healthcare fees and said that inflation was proving very stubborn in the service sector in particular.