Italian inflation softens again in April

Italian inflation remains subdued in April, still exposed to the vagaries of energy prices. After temporarily accelerating in March on the back of a reduced disinflationary effect of energy goods, the non-regulated energy goods component acted the other way around this month. Together with transport services, they drove headline inflation down to 0.9% (from 1.2% in March), outweighing the inflationary push coming from tobacco, recreational and cultural services and regulated energy goods.

Core inflation, which excludes energy and fresh food, edged down marginally to 2.2% on the year (from 2.3% in March), resuming the downward trend temporarily interrupted in March.

Looking at the goods component in the non-energy domain, we note that inflation remains negative (-0.3% on the year) for durable goods and is decelerating (to 1.5% on the year) for both semi durables and non-durables. Inflation in services edged down to 2.9% (from 3% in March), confirming its relative stickiness.

The low April inflation reading and its breakdown suggest that consumer demand started the second quarter on a soft footing. While a resilient labour market has clearly helped to support household balance sheets, wage growth at a yearly pace of 3% in the first quarter is not strong enough to compensate for the cumulated erosion of real disposable income suffered over the inflationary wave. The start of a rate cutting cycle by the European Central Bank will likely have a say in the process.

A gradual acceleration of the energy component driven by the fading favourable base effect could push the headline inflation measure towards 2% by the end of the year. We are currently forecasting average headline inflation at 1.5% in 2024, with downside risks.

The Italian part of eurozone inflation looks set to remain a useful handle for the ECB to decide its first rate cut in June.