Slight decline in Italy's inflation rate in December 2023, marked by energy and services

Italian inflation experienced only a marginal decrease in December. The momentum in the energy sector persists, and it is anticipated that the impact of discontinuing favourable administrative measures will soon be evident, causing headline inflation to slightly exceed the 2 per cent ceiling, as reported by ING THINK economic and financial analysis.

Disinflation is influenced by the unpredictable nature of energy and food prices

The rapid descent in headline inflation showed signs of stabilising in December. As per the initial report from Istat, the year-on-year headline inflation rate for December stood at 0.6 per cent, a marginal decrease from 0.7 per cent in November. This slight dip was influenced by a downward impact from the regulated energy sector, recreational services, and processed food, which more than offset the upward movements in non-regulated energy goods and fresh food. The volatility of certain components, along with their corresponding base effects, continues to play a central role in shaping the dynamics of headline inflation.

The Italian National Institute of Statistics (Istat), a public research organisation, is the main producer of official statistics in the service of citizens and policy-makers.

Italian foundries experienced a decline in production during the second quarter

During the second quarter of 2023, Italian foundries experienced a decline in production activity, primarily attributed to a reduction in orders from major customer sectors. This contraction is emphasized in the economic survey conducted by the Assofond Study Centre, focusing on data from April to June 2023.

Of the companies that reported a reduction in production, 69.6 per cent attributed the decline to decreased orders and demand, while 13 per cent cited a decrease in working days. The remaining 13 per cent provided "other reasons" as the cause, encompassing both normal cyclical trends and extraordinary factors leading to plant downtime.

Hindalco ropes in Italian firm Metra for extrusion technology for aluminium rail coaches

In September 2023, Hindalco Industries, the global leader in aluminium rolling and recycling, announced a technology partnership agreement with Metra, an Italy-based company. The collaboration aims to facilitate the manufacturing of high-speed aluminium rail coaches. As part of the agreement, Hindalco, a member of the Aditya Birla group, will share extrusion and fabrication technology to enhance the construction of advanced aluminium rail coaches. Extruded aluminium plays a pivotal role in the railway industry by contributing to the reduction of coach weight.

Core inflation is steadily decreasing

In December, the distinction between goods and services in terms of inflation narrowed but remained significant. Goods inflation was officially reported at -1.5 per cent y-o-y, a slight decrease from November's -1.4 per cent, while services inflation saw a decline to 3.3% YoY, down from 3.7 per cent y-o-y in November.

Core inflation, excluding energy and fresh food, exhibited a notable deceleration to 3.1 per cent y-o-y, indicating a robust downward trend compared to the 3.6 per cent reported in November. The contained growth in hourly wages, recorded at 2.7 per cent in November, likely contributes to this overall trend.

Looking ahead

ING THINK also reported that headline inflation will be driven by energy price changes influenced by prior administrative measures to mitigate the impact on households in the coming months. Notably, in January, the retail gas market will see the restoration of VAT to the standard 22 per cent, along with other suspended charges. Increased prices, including motorway tolls, are expected to elevate headline inflation above 2 per cent by March 2024, stabilising temporarily. Potential risks include unfavourable geopolitical events in the Red Sea affecting shipping costs. The forecast maintains a 2.2 per cent average inflation for Italy in 2024.