Italy’s inflation rate climbed to 1.3% in March compared to the previous year, showing a slower rise than expected. This development underscores the current state of the Italian economy, which is experiencing what can be described as a ‘soft landing.’
After experiencing rapid post-pandemic growth rates in 2021 and 2022, Italy’s economic activity has notably slowed down. However, this deceleration has been carefully managed to mitigate inflation without triggering a recession, achieving a delicate balance that central bankers have long aimed for in such circumstances.
Preliminary data from Istat, Italy’s statistical office, released on Friday, revealed that the annual consumer inflation rate stood at 1.3% in March 2024. While this marks an increase from the previous rate of 0.8%, it falls short of the anticipated 1.4%. Similarly, monthly inflation saw a modest uptick of 0.1%, lower than the expected 0.2%.
The slight increase in inflation can be attributed to the easing decline in energy prices, which dropped by 10.8% in March compared to 17.3% in February. Additionally, prices for transportation services accelerated by 4.4%, up from 3.8%.
However, prices of unprocessed food products slowed down in March, and the annual dynamics of “shopping trolley” prices showed a decrease, while core inflation saw a modest increase.
Inflation consistently dropping since October 2022
Italy’s annual inflation rate has significantly dropped since reaching a four-decade high in October 2022, when it peaked at 11.8%. It remains well below the euro area average, which stood at 2.6% in February 2024.
Several factors have contributed to this decline. Supply-side improvements, such as the significant decrease in energy prices, have played a role, alongside demand-side influences. Monetary policy measures, including heightened interest rates set by the European Central Bank, have cooled the economy by dissuading firms and households from taking on loans, thereby tempering inflation.
Looking ahead, Italy’s inflation is projected to be 2.0% in 2024 and 2.3% in 2025, according to forecasts from the European Commission. Despite this, headline inflation is expected to remain considerably lower than the Eurozone average, reflecting restrained wage growth trajectories.
Moreover, Italy has achieved this soft landing without experiencing an economic downturn or deteriorating employment conditions. Surveys on the activity within Italy’s services sector have shown signs of expansion, and the unemployment rate hit a 16-year low in January 2024.
In conclusion, Italy has effectively navigated a successful soft landing, demonstrating its ability to manage moderated growth. Moving forward, monitoring the effects of potential interest rate cuts and global economic performance will be crucial in understanding Italy’s inflation patterns.
