Wednesday, January 30, 2008

Italian Inflation January 2008

Italy's inflation rate in January rose to its highest in at 11 years, driven by rising energy, transportation and food costs. Consumer prices calculated for the European Union harmonised CPI standards rose by 3.1 percent from January 2007, the fastest rate since this particular index was created in January 1997, according to data from the Rome-based national statistics office (ISTAT) today. Prices fell 0.8 percent from December because of post-Christmas retail discounts, and even though this fall was sharper than the 0.4% fall registered in January 2007 the rate still shot up due to the strong base effects of previous months. However, it is not at all clear what happens now, since the Italian economy is evidently slowing fast, and the drop in prices from December is significant.

The most significant impact of this inflation data in the short term is that it virtually guarantees that the European Central Bank will keep interest rates at a six-year high of 4% when they meet on Feb. 7 since according to their statues inflation has to be a greater concern than slowing economic growth. Inflation in the 15 nations sharing the euro accelerated to a 14-year high of 3.2 percent in January according to the recent flash estimate, overshooting the bank's 2 percent limit for a fifth month.

In Italy, transportation costs, which include gasoline, rose 0.4 percent from a month ago, according to the national (NIC) index. No breakdown is given at this point of the EU-harmonized index, since this awaits the official publication by eurostat later in the month. Prices of housing, water, electricity and fuel jumped 1.5 percent in the month. Food and beverage costs rose 0.6 percent from December.

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