(Telestock) – No surprises from the preliminary data on Italian inflation for August, released by Istat. As Paul Pizzoli, Senior Economist at ING. Headline inflation – the expert points out – fell to 1.1% (from 1.3%) on an annual basis, still mainly affected by energy-related base effects. The August decline was driven by lower inflation of unregulated energy goods and durable goods, which outpaced the acceleration of regulated energy goods, transportation services and non-fresh food.
The gap between goods inflation (-0.5% from -0.1%) and services inflation (3.2% from 3%) widened in August, leading to a small increase in core inflation to 2% (from 1.9%). Better demand conditions in the services sector compared to manufacturing are one possible explanation.
Looking ahead, the leading indicators available send mixed signals. NIn recent months, business surveys have signaled a modest decline, albeit from low levels, in manufacturing producers’ selling price expectations over a three-month horizon, while those of service providers continued to decline until July, before picking up again in August. Wage developments seem set to remain a relevant variable for inflation developments in the coming quarters, given that a good portion of expired contracts are still being renewed. In June, hourly earnings grew at an annual pace of 3.6%.
It seems reasonable to expect “that if some contracts are renewed, wage dynamics will rise a little in the second half of 2024, contributing to a gradual increase in overall inflation towards the end of the year. The resilience of the labor market, confirmed today by Istat with an announcement of a further increase in employment and a drop in the unemployment rate to 6.5% (from 6.9%) in July, albeit with an increase in inactive people, seems to support this vision”.
Overall, we believe that Italian inflation will approach to the 2% area, without reaching it, by the end of the year, and that average inflation in 2024 will settle in the 1.2% area.