The governor of Bank of Italy, Ignazio Visco, in his speech at the 28th Assiom Forex Congress dwelt at length on the surge in inflation, which reached 5.1% in the euro area in January, the highest value since start of monetary union. “The rise in energy prices contributed directly to it for more than half – Visco specifies – even net of the more volatile components, the sharp increase recorded in the second half of 2021 largely reflected the higher energy costs”. “In recent months, the increase in prices has been higher than expected in December and tensions on the energy front have not yet eased. Although the expected reduction in inflation is likely to be confirmed in the coming months, the risks of a un-anchoring expectations and the start of a run-up between prices and wages, of which there is no evidence at the moment, must be carefully monitored “, asserts Visco, noting that inflation is essentially” a tax, probably largely destined to return, whose more distorting effects can be offset, where possible, by public budgets. The increase in costs must not, however, turn into a prolonged inflationary spiral “.
Visco predicts that, unless price and wage spirals are triggered and if expectations remain firmly anchored to the ECB’s inflation target, as is currently the case, the effect of energy price increases will largely be reabsorbed in 2023.