Italian Inflation Stable At 1.6%

Italian inflation remains stable at 1.6% in September, according to preliminary data from Istat. That's in line with our forecasts. The acceleration in prices of processed food and energy goods balanced out the deceleration in fresh food prices, leaving headline inflation unchanged. The harmonised measure, which picked up the end of summer sales, inched up to 1.8%.

The core measure, which excludes fresh food and energy, remained stable at 2.1% on the year. As services inflation decelerated and goods inflation increased, the gap between them shrank slightly to 1.9% (from 2.1% in August).

Inflation stability seems the natural consequence of a stagnating economy, a relatively strong euro and the EU's choice not to resort to retaliatory tariffs against the US. As we do not see an imminent substantial acceleration in economic activity, these factors look set to remain in place, at least in the short term. Furthermore, should a solution to the Israel-Gaza conflict be found soon, the risk of an oil price acceleration would likely diminish further. In the meantime, gas prices have stabilised in the €/31/MWh area, and with national storage at 92% full, risks of shortage-induced electricity prices look low.

Wage growth, a powerful driver of services inflation, has also cooled to 2.8% in July, despite a low unemployment rate. This is slowing the recovery in the purchasing power gap, which widened markedly over 2022 and 2023, and yet remains to be filled. Against a backdrop which remains uncertain, an imminent acceleration in private consumption, inducing excess demand inflation, seems unlikely. Pricing intentions from business surveys are also signalling a prudent pricing approach expected over the next few months, with no relevant deviation from current policies in any direction.

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