PARIS (Reuters) – The European Central Bank (ECB) could proceed with additional rate hikes but these should be limited, including “in their size”, said François Villeroy de Galhau, governor of the Banque de France ( BdF), in an interview published Monday by Le Figaro on its website.

“There may be a need for a few additional boxes; but in my opinion they must be limited both in number and now in size,” François Villeroy de Galhau told Le Figaro.

The governor of the BdF sent his annual letter to the President of the Republic Emmanuel Macron on Monday, in which he noted that underlying inflation shows no sign of slowing down.

If the current inflationary crisis began with the prices of energy and raw materials, it has since spread to all goods and services, underlines François Villeroy de Galhau in this letter.

“At this stage, neither inflation excluding energy and food, nor a broader set of core inflation indicators monitored by the Eurosystem still show clear and converging signs of a trend reversal,” writes -he.

“This justifies the continuation of our monetary action”, he adds.

The ECB is expected to raise rates again, for the seventh consecutive time, after its May 4 meeting. A 25 basis point hike is expected to be decided, sources familiar with the talks told Reuters.

Faced with the magnitude of the inflation shock, it is “normal” for a process of wage catch-up to be put in place in order to avoid too substantial a loss of purchasing power, notes François Villeroy de Galhau.

In France, the average per capita salary – which notably includes bonuses – should increase by 6% in 2023, temporarily exceeding inflation which would stand at 5.4%, before returning to a “more moderate pace” from of 2024, he points out.

Unlike Germany or Spain, there is little evidence to confirm that companies in France have increased their prices to improve their margins, continues François Villeroy de Galhau.

“In 2023 and 2024, corporate margins are expected to decline moderately and temporarily due to the economic situation, before recovering in 2025,” he wrote in his letter.

François Villeroy de Galhau observes that inflation has been lower in France than in other countries in the euro zone due to the implementation of tariff shields, in particular on electricity and gas prices.

“While our public deficit this year will be one of the highest in Europe, we must bring these costly measures towards zero – around 50 billion euros over 2022‑2023 – by taking advantage of the current deceleration in oil prices. energy,” he says.

(Report Leigh Thomas, Blandine Hénault and Kate Entringer for the , edited by Bertrand Boucey)

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