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Economy in Brief

Italian CPI Keeps Low Inflation Despite Higher Energy Costs
by Carol Stone  March 31, 2005

The Italian statistical agency Istat today reported that the March CPI was up 1.9% from March 2004. This result means that inflation in Italy has held at or below a 2% yearly pace for the last six months. The persistent decline to such a low rate in recent months seems impressive in light of the strong uptrend in world energy prices.

As seen in the table below, energy components of the Italian CPI array have indeed been strong, with transport-related fuel up 10% during 2004 and 7.7% in February from a year earlier (latest available for this line-item). The behavior of some other basic consumer price items suggests reasons for the moderate overall inflation: food prices in Italy are falling and clothing prices are rising very slowly. Food had seen outsized increases from 2001 through 2003, but steep declines in fruit and vegetables have led that segment down since early last year. Clothing prices are actually falling in a number of countries, and while they are rising in Italy, these increases have been progressively slower since the spring of 2003. Also, surprisingly -- at least to an American commentator -- health care prices are declining. The cost of medicine and pharmaceuticals fell at about a 6% pace in January and February. Notably, over the last couple of years, inflation rates for medications in the US have eased as well, but in Italy, these prices have been falling outright.

Thus, there are some cushions in the Italian price system against the impact of surging energy costs. So inflation may not automatically ratchet higher with every €1 increase in the price of a barrel of oil.

December/December
Italy: Consumer Price Index
Yr/Yr % Change
Mar 2005 Feb 2005 Jan 2005
2004 2003 2002
Total CPI 1.9 1.9 1.9 2.0 2.5 2.8
Food -0.2 -0.4 -0.7 -0.3 3.9 3.3
Apparel 1.7 1.8 1.8 1.8 2.6 3.1
Transport Fuel -- 7.7 6.8 10.0 0.2 4.6
Housing Electricity & Fuel -- 4.5 3.8 2.5 3.0 -1.8
Memo: Euro-Zone "Flash Estimate" 2.1 2.1 1.9 2.4 2.0 2.3
US CPI -- 3.0 3.0 3.3 1.9 2.4
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