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Economy in Brief

Italy’s Inflation Rate Shows Core Pressure Through Dec; In Jan Headline Abates 
by Robert Brusca February 6, 2008

Not every inflation report or trend in the EMU is bad news. But the news is still not pleasing to an ECB that is trying to inherit the mantel of inflation fighting respectability from the Bundesbank. Inflation in the Euro Area consists of an overall HICP measure but there is also the country level data that contribute to the HICP. Italy’s new inflation report is shown below. Headline inflation slowed sharply in January and the three-month growth rate edged slightly lower from its six-month value. Even so, that rate is unacceptably high. Across categories inflation slowed producing a diffusion rate of 42% implying that the deceleration was relatively widespread. But over six months diffusion shows that it has accelerated and over 12 months it is about the same as it was a year ago in terms of the breadth of the acceleration/deceleration (diffusion) even though it is higher in terms of the headline and the core.

The chart shows that the core rate has been steadily accelerating. But if energy prices abate that trend should be truncated. In short Italy’s data are the exact reason that the ECB remains wary. While the current month hints at a break in the pace the trends are simply not good enough to take the ECB off guard.

Italy HICP and CPI details
  Mo/Mo % Saar % Yr/Yr
  Jan-08 Dec-07 Nov-07 3-Mo 6-Mo 12-Mo Yr Ago
HICP Total 0.1% 0.4% 0.4% 3.5% 3.9% 3.1% 1.9%
Core -- 0.3% 0.2% -- -- -- 1.6%
CPI
All 0.4% 0.4% 0.4% 4.9% 3.8% 2.9% 1.8%
CPI excl Tobacco -- 0.4% 0.4% -- -- -- 1.6%
Food 0.5% 0.5% 0.5% 6.0% 6.9% 4.5% 2.6%
Alcohol 0.9% 0.2% 0.1% 4.6% 4.7% 3.5% 4.6%
Clothing & Shoes 0.1% 0.1% 0.2% 1.8% 1.8% 1.6% 1.4%
Rent & Utilities 1.1% 0.5% 0.7% 9.8% 7.4% 4.0% 4.2%
Housing & Furniture 0.8% 0.2% 0.2% 4.7% 3.6% 3.6% 1.6%
Health Care 0.2% -0.2% -0.2% -1.0% 0.5% 0.7% -1.5%
Transport 0.9% 1.1% 0.7% 11.7% 7.4% 5.5% 1.7%
Communication -0.7% -0.1% 0.0% -3.4% -4.2% -8.4% -4.5%
Recreation & Culture -1.1% 0.6% 0.1% -1.6% -0.2% 0.6% 0.9%
Education 0.1% 0.1% 0.1% 1.5% 2.1% 2.2% 2.3%
Restaurant & Hotel -0.1% 0.2% 0.1% 0.8% 1.4% 2.4% 2.4%
Other 0.4% 0.1% 0.4% 3.7% 3.5% 3.1% 2.3%
Diffusion   41.7% 66.7% 50.0% --
Type: Diffusion: Compared to 6-mo 12-mo Yr-Ago --
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