The cost of living in Bankitalia’s thoughts
Per the governor of the Bank of Italy, Ignazio Visco, it is “unlikely that inflation will be as persistent as it was in the 1970s”. Or maybe not. So it’s better to go there with lead feet as the governor himself explained just a week ago. On the one hand there is therefore a reassuring message from the country’s leading banking institution, on the other a concern not only for the real turn that the cost of living will take, but also for the effects on the economy. Vision rimbottista, to avoid misunderstandings.
According to the head of Bank of Italy, “considering the previous historical excursus and despite the current encouraging signs on the inflation situation, one can wonder whether the euro area will experience the long persistence of inflation observed in many countries during the 1970s“.
Legitimate question given the current times. And that she deserved a decisive answer: “I think this is very unlikelynot only for the substantial improvements in the conduct of monetary policy, but also and above all for the numerous structural changes that have taken place in our economies since then”, Governor Visco explained in a speech at the Warwick Economics Summit entitled “Monetary policy and the return of inflation”.
Yet for Visco it is necessary “avoid leaving inflation high for a long time“
At least that was the governor’s view just one week at the 29th Assiom-Forex Congress. For Visco, the meeting was in fact the right occasion for an invitation to the “social partners – so that – they adopt responsible decisions, aimed at guaranteeing that the dynamics of prices and wages remain consistent with the maintenance of monetary stability” as reported by Il Sole24Ore of the last February 4th. All this just for “avoid leaving inflation high for a long time” as Visco clarified. A period that the governor evidently deems shorter than that of the 1970s.
Of course everything will depend on monetary policy. But even on this issue, Visco’s vision is decidedly in search of squaring the circle. “The action – of the ECB – will have to continue by continuing to find the right balance between the risk of doing too little, leaving inflation high for too long, affecting monetary expectations and stability, and the risk of doing too much, leading to a fall in income and employment and jeopardizing financial, with no less serious repercussions on price trends” the governor clarified at the same event. In short, in Bankitalia’s vision, anything can happen.