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Italy’s inflation down, and it is not a good news



The economy is doing so well in Italy that inflation is plummeting, unlike in France and Germany.

Italy’s annual inflation rate fell to 0.6 percent in December 2023 from 0.7 percent in November, slightly below expectations of 0.7 percent and indicating the impact of the ECB’s prolonged restrictive monetary policy. Our economy is slowing down sharply, and inflation acts as its thermometer.

As a result, inflation, excluding energy and fresh products, slowed to 3.1 percent from 3.6 percent in the previous month. Year-on-year energy deflation continued for both unregulated (-21.1% vs. -22.5%) and regulated (-41.7% vs. -34.9%). In addition, the cost slowed for processed foods (5% vs. 5.8%) and recreational and cultural services (3.6% vs. 4.6%). On the other hand, it increased for unprocessed foods (7 percent vs. 5.6 percent). Over the month, Italian consumer prices increased by 0.2 percent, following a 0.5 percent decline in November.

Here is the related graph:

See inflation over a longer horizon

Two quick observations:

  • First, Italy has three points less inflation than Germany and France, which had inflation at 3.7 percent in December. Even core is lower, so our wage dynamics are also lower, i.e., stimenti are not moving.
  • We are at a much lower level of inflation than we were in 2018–19, ante COVID. So the effect of monetary and fiscal stimulus is amply resolved.

At this point, the inflation signal, combined with the PMI indicators, indicates that Italy is going through very tough economic times. Yet no one seems to care.

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