The good news, seen from here, is that prices are stable. Istat, the Italian statistical institute, says today that in February the consumer price index rose by just one decimal place, and stands at 0.8 percent on an annual basis. But to see the bad news it is enough to broaden our gaze to the area of the single currency and to the data from Eurostat, the European Statistical Institute. In February prices fell from 2.8 to 2.6 percent, against an expectation of 2.5. You might say, a decimal, no big deal. Very bad instead. “Core” inflation, the one that excludes very volatile components such as food and energy, is still at 3.1 percent.
Inflation is falling, but less rapidly than expected. And this is a great support to the reasons of those, among the central bankers of the Nordic countries, who are keeping an eye on the chancelleries’ request to start cutting interest rates, still at 4 percent, the highest since 2008. The latest to Portuguese Finance Minister Fernando Medina pushed for a cut on the sidelines of the G7 summit in Sao Paulo: «With this interest rate policy we risk a lot». As always, the most convinced of the need for easing are the Mediterranean countries such as Italy, France, Spain and Portugal.
There are essentially two reasons that are keeping the price level high. The first: the wars in Ukraine and the Middle East keep the pressure on raw material prices high. If that wasn’t enough, we have to deal with the increase in transport prices due to Houthi attacks on commercial ships crossing the Red Sea. Many shipping companies traveling from the East prefer to sail around South Africa, with knock-on effects on the cost of goods transported.
And then there is the increase in wages needed to support the sharp increase in prices in recent months. There is a big debate among the twenty central bankers of the eurozone as to whether or not this is bad news. The fact is that some argue that the time has come to overcome fear, and prevent failure to cut rates from triggering a recession, which is already evident in Germany for example. Others (primarily the Bundesbank) think the opposite. The most astute fear the syndrome of the Seventies, when central banks lowered their guard and by cutting rates triggered a new run in prices. They think so in Berlin, but French President Christine Lagarde is also convinced of it.
Today’s data confirms the concerns of the most cautious. In recent days, the thesis seemed to prevail among experts that despite everything, Frankfurt would break the deadlock before the summer. And now the chances are rising that Frankfurt will remain stationary at least until June. The calendar of the European Central Bank is mandatory and provides for four appointments between Lagarde and the press between now and September, the only dates on which the changes in rates are communicated: 11 April, and it is now obvious that nothing will happen by then. On 6 June (first day of the window in which we will vote for the European elections), 18 July and 12 September. The timing of the announcement of the first cut will depend on how the data evolves. Today’s promises poorly.