This Friday, the National Institute of Statistics and Economic Studies revealed that inflation was down in March, at only +5.6%. This figure is down from the previous month (6.3% in February), leading some to believe that inflation could subside in the coming months.
While the rate of the Livret A, this savings investment guaranteed by the State, pays 3% net since February 1, can it still increase in the months to come? According to many analysts, the rate could even increase to 4% net from August 1, the date of the next review. That said, a stable – or even decreasing – inflation outlook could upset these plans.
A Livret A that pays less?
Indeed, the return on this savings investment is a combination of the average short-term monetary interest rate and the average inflation over the last 6 months (without being able to fall below 0.50%) .
In other words, if inflation falls in the 6 months preceding the next revision, there is no reason for the Livret A to yield more. In the short term, the risk of seeing the Livret A fall below 3% net is low. According to the official formula, the interest rate should even currently be around 3.30% (and not 3%).
It would take a much longer period of continuously falling inflation to see this popular investment fall back below 3%. That said, the likelihood of hitting 4% net on one’s savings seems to be receding with these inflation figures.
Furthermore, it is important to remember that the real yield of the Livret A remains negative. Indeed, the cost of living (inflation) is increasing more rapidly than the Livret A rate. That said, the difference has gradually narrowed over the last few months thanks to a threefold increase in the rate for this investment.
Food weighs on purchasing power
Can inflation pick up again? This weekend, the OPEC countries agreed to reduce oil production, causing the price of a barrel to explode. While the fall in inflation in March was mainly due to the slowdown in energy prices, it could quickly take the opposite path.
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At the same time, food prices continued to rise (15.8% over one year). It is also the leading contributor to inflation in France, explain Charlotte de Montpellier for the bank ING France. According to the estimates of the Minister of the Economy, Bruno Le Maire, inflation should however reach its peak very soon.
If such a scenario were proven, it would be logical to see the remuneration of the Livret A stagnate in the coming months. In the event of a drop in inflation, the government, on the recommendation of the Banque de France, could choose to reduce the return offered on this investment. This measure would have a direct impact on the LDDS rate, which would then also drop.
