To curb inflation, you don't need to push the economy into recession. "We must be careful not to go too far in raising interest rates," warned Ignazio Visco, governor of Bank of Italy, in an interview with Bloomberg. "The transmission of monetary tightening takes time, we need the patience to wait for the ECB's decisions to produce their effects", he added, noting that the demand for credit has already flattened out while consumption is still growing, especially in the sector of services due to the tourist boom.
However, the price race is losing momentum and, for Visco, it could stop sooner than expected. "The ECB estimates that inflation will return to the 2% target by the end of 2025, but my impression is that the return will be faster," he underlined, predicting a substantial reduction already in the autumn. The growth rate in the Eurozone has already halved, going from 10.7% in October last year to 5.5% in June 2023. Further declines will depend on the trend in core inflation, that net of the most volatile energy and food prices.
The stubbornness of the basic data it is the result of the transfer of the flare of gas from production to final goods. Indeed, calculates the IMF, the rise in EU inflation in the last two years has been for about half caused by the increase in profits of companies that have managed to raise prices more than proportionally to the growth in costs. Now that the energy crisis is over, Visco predicted, "we will see a drop in underlying inflation by the end of the year".
The words of the governor of Bank of Italy must be read in the light of the debate underway in Frankfurt between "hawks" and "doves", whose features are however not so clear anymore. While Isabel Schnabel, German member of the Executive Committee of the ECB, said that against inflation "it is better to do too much than too little", insisting on a new increase in the cost of money, Visco argued yesterday "that we are close to the peak" of rates. And even the Dutch governor Klaas Knot, for a long time "hawkish", admitted that a rise in September "is not a certainty".