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Cablegate: Cpi and Unemployment Data Enter Political Debate

VZCZCXRO2968
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #0653/01 0520957
ZNR UUUUU ZZH
R 210957Z FEB 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 5037
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 000653

SIPDIS

SENSITIVE
SIPDIS

PASS FEDERAL RESERVE
PASS CEA
STATE FOR EB and EUR/WE
TREASURY FOR DO/IM
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER
USDOC FOR 4212/MAC/EUR/OEURA

E.O. 12958: N/A
TAGS: EFIN ECON ELAB PGOV FR
SUBJECT: CPI AND UNEMPLOYMENT DATA ENTER POLITICAL DEBATE


1. (U) SUMMARY: Domestic issues - purchasing power, inflation and
unemployment - continue to dominate the French presidential
campaign. One consequence is that public perceptions of being less
well-off, and the confusing barrage of competing statistics, have
caused some to question the validity of data released by the GOF
through the National Statistical Agency INSEE, and to question
INSEE's independence from the GOF. END SUMMARY

CPI Enters Debate on the Cost of Living
---------------------------------------
2. (U) According to INSEE, the French National Statistical Agency,
inflation as measured by consumer prices averaged 1.9% from 2002 to
2006 and dropped to 1.5% in December 2006. Over the same period of
time, household confidence surveys show that French consumers think
inflation has been consistently higher than official measures, by up
to 2 percentage points. One reason could be that consumers know how
high prices jumped when France converted to euros in 2002, and have
yet to see any fall in prices. According to a November 2006 TNT
Sofres poll, 94 percent of the French still believe that the euro
has "aggravated" price increases. Even when dollar-denominated oil
prices dropped due to the euro appreciating against the dollar,
consumers complained that they never saw a corresponding drop in the
price of gasoline at the pump. In a recent report, INSEE analyzed
the cost of living of the poorest and the wealthiest. According to
the report, the inflation rate for the 10 percent poorest households
was 0.11 percent higher than the average CPI over the last ten
years. The 10 percent wealthiest consumers saw annual inflation
smaller than the CPI by 0.09 percent.

3. (U) Consumers believe the French consumer price index (CPI) is
not comprehensive, and that it unfairly undervalues the weight of
some goods and services. Rents are often cited as an example.
Confirming their perceptions, in 2004 the head of the hypermarket
Leclerc, Edouard Leclerc, launched a debate in France on the
effective purchasing power of consumers. In June 2004, then Finance
Minister Nicolas Sarkozy created a price index for the supermarket
sector ("grande distribution"). In September 2005, the current
Finance Minister Thierry Breton introduced a "standard basket"
("chariot type") that updates price increases for several categories
of goods and services on a weekly basis.

4. (U) In December 2006, the Socialist Party presidential candidate,
Segolene Royal, denounced the CPI as "a public lie." Her main
rival, Interior Minister and center-right UMP Party candidate
Nicolas Sarkozy, subsequently sought to draw on the same public
sentiment, acknowledging that "the usual index does not reflect
reality." Not surprisingly, candidates have focused on the
"purchasing power of workers" in their speeches. Sarkozy argues
that workers should be given the right to work longer hours to
improve living standards. Royal has constantly made a reference to
"the purchasing power of wage-earners" in her speeches. On February
5, the co-manager of Royal's campaign, Francois Rebsamen, said that
Royal would propose CPI indices based on income levels. The
socialist party has called for an 18 percent increase in the minimum
wage (SMIC) to 1,500 euros as early as possible.

5. (U) To respond to the criticisms, INSEE announced a plan to put
in place a personalized calculator on its website. The calculator
will allow any consumer to calculate his or her personal price index
by indicating the individualized components of his or her
consumption (food, rent, gas, restaurant, vacation, etc.).
According to commentators, "personal" inflation should outpace the
CPI by 1 percent in 2006 for those who devote one third of incomes
to housing rental costs.

Unemployment Data Also Perceived as Surreal
-------------------------------------------
6. (U) Although the official unemployment rate declined by 1 percent
to 8.6 percent in December 2006, critiques about unemployment data
have been reaching a crescendo. The main critique is that the
number of unemployed French workers is not 2.3 million (based on an
ILO definition that allows international comparisons), but 4.4
million due to "invisible unemployment," which is in fact becoming
more and more visible. According to independent critics such as the
magazine Marianne which publishes the "Marianne barometer," and the
ACDC ("Autres Chiffres du Chomage" which groups associations,
researchers and unions), invisible unemployment includes part-time
workers who desired full-time work (1.3 million in January),
jobseekers pushed into early-retirement (458,000), job seekers in
training (219,000), and jobseekers involved in government-subsidized
contracts -"Contrats Emploi Solidarite and Contrats Borloo"-
(265,500).


PARIS 00000653 002 OF 002


7. (U) INSEE also initially announced it would postpone this year
the benchmarking of unemployment figures, from March to September.
Unions and some politicians accused the agency of yielding to
political pressures in the run-up to elections, since the suspicion
is that the 2007 labor survey would not be flattering to the current
government. The head of the National Unemployment Agency,
Jean-Pierre Revoil, characterized the postponement as "a bizarre and
unprecedented situation." INSEE argued that it had postponed the
labor survey due to serious statistical problems, including the
percentage of non-respondents and sampling difficulties. INSEE
later did an about-face and decided to proceed before the elections,
after it gets advice from its oversight council ("Conseil National
de l'Information Statistique - CNIS") in early March. But its
reputation had already been damaged.

INSEE Independence Questioned
-----------------------------
8. (U) As part of a tour of European statistical agencies, European
experts from Eurostat and Belgian and Irish counterparts are
conducting a peer review of INSEE to evaluate its independence in
the face of "political interventions and other interferences
external to the production and diffusion of public statistics."
Experts will examine conditions in which INSEE applies the Code of
good practices of European statistics, and will publish their
conclusions in a few weeks. At the moment, INSEE operates
independently, but remains affiliated with the Finance Ministry.
New INSEE head for Statistical Coordination and International
Relations, Philippe Cuneo, admitted "European experts think that the
independence principle is not fully respected in France." Finance
Ministry collaborators opined that the problem has already been
mentioned several times, but "is not obvious to formulate explicitly
all aspects of problems and their interrelationship," and the issue
will be "naturally addressed after the publication of the European
experts' report, by this government or the next."

Comment
-------
9. (SBU) The French skepticism of government statistics, while
stimulating a healthy campaign debate, will not help the GOF
implement the labor reforms necessary to reduce the unemployment
rate below 8.0 percent and to help the economy grow. The next
government will probably also have to give greater independence to
INSEE.

STAPLETON#

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