The European institutions continue to talk about a temporary price hike. But the phenomenon that has been going on for some months will have consequences on consumption at the end of the year, which traditionally culminate in Christmas shopping: according to the assessments of Confcommercio the decline could exceed 5 billion. Of inflation European finance ministers spoke yesterday at the Eurogroup meeting. The Commissioner for Economic Affairs Gentiloni also indicated a time frame, the middle of next year, within which the new wave would run out. While on behalf of the ECB the chief economist Philip Lane warned that a monetary tightening at this stage would be “counterproductive” as it would not lower the inflationary pressure, but would penalize the economic recovery. Behind these reassurances, however, the issue is taken seriously at the institutional level. Also look at what’s happening across the ocean: St. Louis Fed Chairman James Bullard said the U.S. central bank could move sooner than expected, with two interest rate hikes in the course. next year.
THE TRANSITION
Even the French Minister of Economy Bruno Le Maire judged what is happening “transitory”, introducing however a distinction: the generalized price increase is destined to return, but there is a “structural” component of the increases, which is linked to fossil energy in this complicated phase of transition to a new model. The latter is a theme on which initiatives are also expected at the European level.
In any case, in the short term it will be difficult if not impossible to avoid an impact on consumption. In Italy Confcommercio has already quantified it, assuming two different scenarios: in the first, which predicts an average increase of 3 per cent in the price index on a trend basis for the last quarter of the year, the reduction in consumption would be 2.7 billion. Such a trend is assumed to be probable: in October, annual growth was 2.9 per cent (3.1 for the European harmonized index). But in the hypothesis, however judged “not unrealistic” by the association’s research office, that the rise in prices goes up to 4 per wind, then the drop would be 5.3 billion.
How do you arrive at this estimate? Confcommercio explains that about 70 percent of the impact depends on the loss of direct purchasing power by consumers, who, given the higher prices, will be able to buy less. But there is also a more indirect effect, linked to the thinning of financial wealth held in liquid form and therefore not protected from inflationary dynamics. All in a context in which there are some incompressible expenses, such as those related to transport or heating, which are already affected by the increases in international gas prices: the margins of movement of consumers would therefore be further limited.
THE CONSEQUENCES
Naturally, if the trend continues significantly in 2022, the consequences would be felt – through consumption – on the growth of next year which, after the very strong rebound expected for 2021, is still expected to exceed 4 per cent. Together with the risk of a restart of the pandemic, which in reality, especially outside Italy, is already manifesting itself with intensity, that linked to raw materials and prices is the main downside risk indicated in all the macroeconomic forecasts of the institutions and private study centers. In its rapid survey on the trend of industrial production, the Confindustria Study Center has already observed that the slowdown recorded in the third quarter of the year is attributable to a series of factors such as the scarcity of materials (and in some cases also of manpower) and the increase in costs, in particular those connected with exports.
In this scenario, the role of central banks is extremely delicate, as they are managing the gradual exit from extraordinary securities purchase programs and have the leverage in their hands for possible increases in interest rates. Increases that, if not properly calibrated, risk dealing a severe blow to the second half.
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