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Economy in Brief

October Consumer Confidence Rises in Italy, But Nascent Inflation and Unemployment Concerns Raise Questions, Too
by Carol Stone October 20, 2005

Italian consumer confidence improved noticeably for October, but people also have a more uncertain inflation outlook. The overall confidence index, calculated by ISAE, the Institute for Studies and Economic Analysis, rose 2.4 points from September to 105.3, the highest in a year. Components covering sentiment about the "general" situation and the "future" situation were both up, by 3 and 4 points, respectively, in the month.

At the same time, several details of the survey appear more mixed than the broad indexes might suggest. Household finances are viewed modestly worse: the "household financial situation", expressed as a favorable/unfavorable balance, is reported at -50 following -48 in September and -44 a year ago. Household budget conditions stand at +5, compared with +8 both a month and a year ago. However, financial expectations are marginally better, at -7 in October from -10 in September but -6 in October 2004. These mixed results imply that consumers are fairly unsure of their finances, but the small size of the moves indicate only hints of nervousness, not decisive moodswings.

Expectations on inflation have changed more, perhaps driven by energy prices. The portion of consumers looking for prices to remain stable has fallen sharply in recent months, as seen in the table below: October's reading is 41% from 58% in October 2004. Offsets occurred in the groups looking for "large" increases, to 11% from 4%, and "medium" increases, to 21% from 15%. The number "unsure" of what they believe about inflation moved to 8% from 4%.

Consumers' nervousness over their finances and relative uncertainty over inflation are accompanied by a more distinct deterioration in the unemployment outlook. 17% of respondents expect unemployment to rise "sharply" in the coming year, up from just 6% a year ago. Those looking for a "slight" increase ticked down one percentage point to 33% from 34%. Thus, those anticipating that unemployment will go up now constitute exactly half of the survey, from 40% last October. So some parts of this consumer survey may indicate that people are in better moods, but other aspects suggest developing worry and uncertainty over the two major bugaboos in any economy: inflation and unemployment.

Italy ISAE Survey Oct 2005 Sept 2005 Aug 2005 Oct 2004 2004 2003 2002
Overall Consumer Confidence, Index 1980 = 100, Seasonally Adjusted 105.3 102.9 100.9 101.1 101.4 106.2 115.8
   General Situation 83.8 80.8 80.2 94.6 88.6 91.4 105.2
   Future Situation 101.8 97.8 97.0 104.3 100.8 107.2 113.4
Prices, Next 12 Mos: % Expecting Large Increase, Not Seasonally Adjusted 11 11 8 4 5 7 16
   Medium Increase 21 19 16 15 14 15 35
   Smaller Increase 17 16 14 17 21 20 13
   Stable 41 45 52 58 54 51 31
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