Italy adds surging inflation to its Girlfriend in a Coma problems

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by Shaun Richards

These days I think that the opening point of any analysis of an economy needs to start with the issue of inflation and the associated one of the cost of living. Sadly it is hitting Italy hard too.

In February 2022, according to preliminary estimates, the Italian harmonised index of consumer prices (HICP) increased by 0.8% on monthly basis and by 6.2% on annual basis (from +5.1% in January).

So it has seen the annual rate of inflation rise above 6% on the Euro area measure. We do not get an exact breakdown but Italy has another measure which gives us an answer I am sure you were all expecting.

The speed-up of the growth on annual basis of All-item index was mainly due to the prices of Energy (from
+38.6% in January to +45.9%), especially of those of Non-regulated energy products (from +22.9% to
+31.3%), whereas those of Regulated energy products confirmed their huge increase (from +94.6% to

On that subject things continue to get worse as Javier Blas has pointed out this morning.

BREAKING: European natural gas benchmark TTF surges to €199.99 per MWh, a new all-time high. In crude oil terms, natural gas is trading at what’s ~$360 per barrel of oil equivalent!!!

This is an area where Italy has left itself especially vulnerable.

ROME, March 1 (Reuters) – Italy would be able to weather a complete breakdown in gas supplies from Russia in the short-term but that would make following winters more difficult, Prime Minister Mario Draghi said on Tuesday.

As to the amounts

Italy, which uses gas for around 40% of its electricity generation, imports more than 90% of its gas. Last year 40% of imports came from Russia.

So gas prices tell us more inflation is on its way and there is another part of the energy complex which is signalling the same thing.

Due to escalating geopolitical tension caused by Russia-Ukraine war, crude oil prices today hit its 11-year high. WTI crude oil price today hit $116.10/barrel whereas Brent crude oil price today surged up to $117.80/barrel levels. ( @livemint)

The price of food was on the rise too creating a cost of living double whammy for Italian workers and consumers.

Prices of Grocery and unprocessed food increased by 0.8% on monthly basis and by 4.2% on annual basis
(up from +3.2% in the previous month).

Of course as central bankers love to point out if you can get by without food and energy things are going really rather well.

Core inflation (excluding energy and unprocessed food) was +1.7% (up from +1.5% in the previous month)
and inflation excluding energy was +2.1% (up from +1.8% in January).

What about economic growth?

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The official numbers showed what for Italy was a strong end to last year.

In the fourth quarter 2021, the Italian Gross Domestic Product increased by 0.6% with respect
to the previous quarter.

But the January monthly report was not optimistic

In January, the consumer confidence index decreased and the deterioration in confidence was remarkable in the service sector while in the construction sector confidence remained elevated. These results suggest that economic activity might decelerate in the coming months.

This added to the change in industrial production in December.

In December, the Italian industrial production decreased by 1.0% with respect to the previous month but on average
in the fourth quarter the increase was 0.5%.

This morning the Markit PMI has suggested that February was better.

The seasonally adjusted Italy Composite Output Index rose
to 53.6 in February, up from 50.1 in January, to signal a solid and accelerated upturn in private sector output…..As a result, private sector growth accelerated to a solid pace
in February, while demand conditions improved

Although it too noted the surge in inflation.

Stronger growth coincided with more intense
inflationary pressures across the Italian private sector
during February. Input costs rose at a survey record
pace, with anecdotal evidence citing surging energy
bills, staff costs, supply issues and rising material costs.
Average charges levied by firms rose steeply as a result


This morning;s release gives us a perspective from several directions and we get a confirmation or recent economic growth first.

In the period November 2021-January 2022, with respect to the previous quarter (August-October), the employment rose (+0.5%, +120 thousand).

In the last three months, a drop was registered for both unemployed persons (-1.8%, -41 thousand) and inactive people aged 15-64 years (-1.4%, -188 thousand).

However the level of employment is still around 400,000 below pre pandemic levels as 22.8 million has replaced 23.2 million.

The ongoing “Girlfriend in a Coma” issue for Italy comes back as we note an overall unemployment rate of 8.8% and a youth unemployment one (15-24) of 25.3%. The latter reminds us that more than a few must have passed through the youth category without ever having a job. That leads to issues like the one below.

In 2020, according to final estimates, there were over two million households in absolute poverty (with
an incidence of 7.7%), for a total of over 5.6 million individuals (9.4%); a significant increase to 2019
when the incidence was, respectively, 6,4% and 7.7%.


Somehow the Italian banks always find trouble. The official message has been one of recovery led by the new standard bearer Unicredit.

LONDON, March 3 (Reuters) – UniCredit (CRDI.MI) has paused efforts to buy Banco BPM after losing more than a fifth of its value since Russia invaded Ukraine, two sources close to the matter told Reuters.

Stock in UniCredit, Italy’s second-largest bank, has dropped by more than 20% since Feb. 24, when Ukraine came under attack, with investors worrying about its 14.2 billion euro ($15.7 billion) credit exposure to Russia as of last summer.

Things could have been worse as it was looking earlier this year at buying the 7th biggest bank in Russia Otkritie. Its exposure as we stand is below.

A full write-off of UniCredit’s Russian business would cost the Italian bank more than 1 billion euros and shave 35 basis points off its best-quality capital ratio, two more sources said. Such an extreme move would still leave UniCredit with 6 billion euros in cross-border exposure.

The original estimates of the exposure of the Italian banks to Italy were around 25 billion Euros which goes a long way to explaining why it dragged its feet over sanctions such as restricting access to SWIFT.

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The ongoing issue here is of our Girlfriend in a Coma theme. At the start of this century and the beginning of Euro area membership annual GDP in Itally was 1.66 trillion Euros at 2015 prices. Last year it was 1.68 trillion Euros. So not much growth. Per person the picture is even worse as it was 29.170 and is now 28,379 Euros.

Switching to the debt picture we have a bit of an each way swing. Firstly it is building up.

General Government net borrowing was -127,389 million euro: -7.2 % of GDP, compared with -9.6 % in 2020……

It is now over 150% of GDP but the swing the other way comes from two factors. Firstly they are inflating it away although care is needed as this benefits the state but the ordinary Italian will be worse off. Also in the circumstances ( thank you to the ECB) Italy can borrow remarkably cheaply at 1.6% for ten years.

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