As Prices Fall In November, Is There A Deflation Risk In Italy?

Italy’s inflation rate fell to its lowest level in 11 months according to the ISTAT initial estimate out today, as energy costs fall and the economic recession makes it harder for producers and retailers to raise prices. Consumer prices calculated on the basis of the European Union harmonised methodology rose 2.8 percent from a year earlier, down from the 3.6 percent registered in October.





So the rate of disinflation is very rapid - but what about outright deflation, or an actual sustained fall in prices. Is there a risk of this in Italy? Well at the present time it is very hard to say, but month on month prices fell 0.4 percent in November, and the index is thus still at the same level it was in June (see chart below). That is Italian prices have been stationary since June. This is largely due to the negative energy prices shock, but with the sharp contraction in both internal and external demand now facing the Italian economy outright deflation certainly cannot be ruled out at this point.