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
+94.4%).
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?
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
further.
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
Employment
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%.
Unicredit
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.
Comment
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.
Notayesmanseconomics's Blog 
Hello Shaun,
If I am to beleive that CB control inflation then Italy has no control . It is at the beck and call of ECB, which is being run for Franko-German gain.
I feel sorry for the poor Italians , as they will be shafted yet again
Forbin
Hi Forbin
The irony is that Italy had until a couple of tears ago the man running the ECB show in Mario Draghi. It sure worked for him as he is now Prime Minister but the idea he could set policy so that Christine Lagarde would have time to learn something about central banking went wrong.
Now Italy has a central bank with no interest in controlling inflation just as it rises…
Hi Forbin
Well Italy had their man in control of the ECB for some time but due to there being other problems we never found out what he would do with an inflation surge? It worked out for him as he is now Prime Minister but the ECB is now in the hands of its least competent President at what may be its biggest crisis.
Still we should not be too surprised and Greeks and Argentines certainly wont be.
The only lesson to take from the events since the GFC is that we simply can’t afford the financialisation of our economies. The subject is way more complex than my brain can handle but ever since banking became the no.1 industry nothing adds up… Except our costs.
The sums don’t appear to add up and worse still is allowing the public to invest in crypto crap investments which will make some people rich and others poor in a high risk vehicle.
When I looked back Britain wanted to place most of its eggs in its basket in financial services and its still one of the biggest and its allowed us to freeze some of the corrupt assets behind Russia’s war by punishing the people close to Putin.
But I think we placed too many of our eggs in financial services, we are now having to bring some of our manufacturing back due to supply problems.
I remember my schoold days when we taught at school near 60 years ago we would be self reliant on gas and it would also be cheap. Well it didn’t turn out that way, as I mentioned yesterday we should be thikinking of open cast mining and nuclear and even fracking, Britain has made its mistake listening to the greenies.
Someone mentioned nat service in the Uk at least that slow down drug abuse and discipline our young and we would have been more prepared for any war in Russia.
Fortunately Britain is still well up the lead in financial services and technology and in a better place imo than many of the European nations including Italy.
These are worrying times for everyone, it pains me to see all the desrtuction in Ukraine at the moment and all refugees leaving the country families being split up and not knowing whether they will see their children, husbands, wives, relatives and friends again. God bless all those displaced people who have done nothing wrong to desserve such suffering.
Fortunately despite Brexit Britain is standing firm in supporting all the other countries who want to see Putin removed and the war in Ukraine ended.
Oil is up yet again today and we are being warned the price cap in place to keep the average household energy bills under £3,000 will not be enough.
https://www.bbc.co.uk/news/business-60600049
Russia Oligarch’s yachts being seized and some Oligarch’s are finding they cannot pay by debit cards their accounts have been frozen.
https://www.bbc.co.uk/news/business-60604206
This surely must be putting pressure on the Kremlin these people are close to Putin and could see a lot of their wealth go up in smoke. Quite what is going to happen with their money is another matter. A good idea would be to use it to rebuild Ukraine , or use it to buy weapons for the Ukrainians and relief efftorts as well. Hit them where it matters in their wallets, its one way of fighting back.
BERLIN (Reuters) – The German unit of the Gazprom-led Nord Stream 2 gas pipeline said on Thursday it will probably be wound up after the German government halted the project’s certification last week in response to Russia’s invasion of Ukraine.
“Due to current developments, also at our shareholder Nord Stream 2 AG, Gas for Europe GmbH will probably be wound up,” the company said in a statement on its website.
Gazprom (MCX:GAZP) subsidiary Nord Stream 2 AG had to set up the German division to comply with European energy rules that require pipeline owners to be different from suppliers of gas flowing in them to ensure fair competition.
The comments come two days after sources familiar with the matter told Reuters that Nord Stream 2 AG, which built the pipeline that was supposed to bypass Ukraine to transport Russian gas to Germany, was considering filing for insolvency.
As of Thursday, a statement on the Nord Stream 2 AG website said it could not confirm that it had filed for bankruptcy.
Hello Peter,
Who is going to get hurt the most?
In all wars truth is the first casuality. I know what I’ll say will offend many but over the years of gulf wars , Libya, Syria and others too numorous to mention here the one thing I learned was the more jingo-ist the MSM line the less truth will be published.
Our press and governments can lie like the best of them . Covid should have taught you to be careful , let alone WMD and babies being thrown out in incubators..
Italy suffered when Gaddafi was over thrown and needed , presumed, American oil to replace what was legally obtained from his government before the war. The war for democracy remember? Same for Egypt, who still have a military government ?
Grey , shades of gray , nothing is clear cut like you are being led to believe .
The Great Game had a change of players , the game is still being played on the world stage .
Is Putin evil and the next Hilter? Well Adolf was on the front page of Time magazine at one time. ( yeah but , history is full of “yeah buts ” and we find out later a truth , hopefully ) . Germany* invaded Poland I often hear but it is on record that Russia did too whilst occupying Latvia, Lithiania and Estonia at the same time. We , of course, declared war only on Germany*
* Germany being the Axis powers – Germany, Italy, Japan , Hungary Romania Slovakia Bulgaria, later Finland
Did you know we occupied Iceland during WW2
As I said shades of grey , always shades of grey , in the search for the “just” war .
And who are the victors in most human wars?
Humans = 0
Crows = 1000
Have a drink , I think I’ll go for that single malt now , sorry for the ramble
Forbin
PS: google “Remember Koom Valley!”
Forbin, I recently read the very TP book you reference; we all need a bit of escapism from time to time; point being, I replicate your shades of grey (Visage ?) comment on occasion, though my reference is nobody’s hat is entirely black or white, same difference. Misinformation isn’t new.
Hi Shaun & thanks for your really interesting blog (as usual).
One particular point which struck me was that there was so little difference when excluding food and energy from inflation, and excluding energy alone.
Does this not indicate that food inflation is trying its very best already, in term of keeping up with energy inflation, and that’s before fertiliser shortages kick in?
It’s going to be a very hard winter next year in Europe,& we could be seeing scenes akin to the immediate aftermath of WWII. in terms of malnutrition. Pictures I had hoped & believed were consigned to history.
Still, I have 250 new potato seed, & 180 main crop, along with seed for many other veg ( my broad beans are just coming through) & there aren’t that many young children in the village unconnected to agriculture.
This is a tight-knit community, & those of us with food will make sure no child starves.
You can live on milk & potatoes.
You can live on milk & potatoes.
and chickens , always useful to have chickens – but beware foxes
Forbin
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