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Analysis

Italian inflation

by Gabriel Stein

Mon 30 Jun 2014

Italian inflation Enlarge Chart loading Image

What the chart shows: The chart shows the twelve-month change in the Italian headline rate of inflation.

Why the chart is important: Deflation remains a threat to the euro area. Even though the EA as a whole may avoid a period of falling prices, some of the weaker economies, notably in the periphery, are already in or rapidly approaching deflation.

This should be a worry for the ECB, both because it would drag down the EA average; but above all, because of the impact on what tends to be the most heavily indebted EA countries. For Italy, whose public sector debt is second only to that of Greece, a period of falling prices – implying little or no nominal income growth – may force further fiscal adjustment on a government that right now is attempting to ease fiscal policy instead.

Two years ago, Italian inflation stood at 3.6%. Now, with headline inflation dropping back to 0.3% in the year to June – the joint lowest number since October 2009 – deflation is looming uncomfortably close.