Inflation slows down in May: +7.6% per year. Istat improves the first quarter growth estimate: 0.6%

MILAN – Two encouraging news for the health of the Italian economy. They come from Istat and concern growth and prices. The Statistical Institute first revises slightly upwards Italian growth in the first quarter, taking it from 0.5 to 0.6% in comparison with the closing quarter of 2022. In the quarterly economic accounts, Istat also updates the growth compared to the first quarter of 2022 (annual comparison) bringing it from 1.8 to 1.9 percent. Then, it’s the turn of inflation: while remaining at very high levels, it slows down again in May. In preliminary estimates, it marks an increase of 0.3% on a monthly basis and 7.6% on an annual basis, from +8.2% in April. This brings us back to the March level. The bulk of the slowdown is due to energy, while food (+14.0% to +13.4%) takes only a small step towards normalisation. Indeed, the improvement in core inflation is minimal, as is the “shopping cart”. In short, for consumers, the increases are far from having subsided. The index harmonized at European level increased by 0.3% on a monthly basis and by 8.1% on an annual basis (from +8.7% in April).

Better than France and Germany

The Italian data for the first part of 2023 is therefore better than that of the main competing economies, namely France and Germany. In the first case, Insee has just published a final figure of +0.2% in the first quarter. While in the second case there was even a contraction of 0.3%. In trend terms, recalls Istat in the note on the quarterly economic accounts, there was a growth of 1.6% in the United States and 0.8% in France and a decrease of 0.2% in Germany. Overall, the GDP of the euro area countries increased by 0.1% compared to the previous quarter and by 1.3% compared to the first quarter of 2022.

Growth acquired at +0.9%

Commenting on the data just published, Istat underlines that “the complete estimate of the quarterly economic accounts confirms the recovery of the Italian economy in the first quarter of 2023 after the setback at the end of 2022”. And adds that acquired growth for 2023 it is positive, i.e. the one that would occur without further cyclical changes in the remaining quarters of the year: it is 0.9%. In practice, the indication “around +1%” for the whole of 2023 has already been reached, which also comes from the final considerations of the governor Ignazio Visco.

“The recovery – the statisticians detail – is due to internal demand with positive contributions from private consumption for 0.3 percentage points and public consumption and investments both for 0.2 percentage points. Conversely, negative contributions for 0.1 percentage points both inventories and net foreign demand.

Stationary income

In the box dedicated to employment, the quarterly economic accounts note that “hours worked recorded an increase of 1.3% compared to the previous quarter. This result is the synthesis of a 0.4% drop in agriculture, forestry and fishing and growth of 1.9% in industry in the strict sense, 0.3% in construction and 1.4% in services”. Painful chapter, the payrolls: “The per capita compensation of employees of the total economy is stationary, due to a growth of 0.7% in agriculture, 0.4% in industry in the strict sense and 1 .2% in construction which contrasts the 0.2% reduction in services”.

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Focus on prices

However, attention was mainly focused on updating the trend of the prices, the compass for the action of the European Central Bank which is tightening rates to cool the run of inflation. The drop to +7.6% per annum is less than what Unicredit analysts were considering, who saw the main index at 7.3%. It is clear that extraordinary levels are in sight, far from the ECB’s target of 2%.

There are, therefore, modest improvements, but still intertwined with energy. So much so that consumer associations speak of an “optical effect” (Codacons) and of “good news, but family problems are far from being solved” (National Consumer Union). For a couple with two children, inflation at +7.6% means a sting of 2,257 euros on an annual basis, of which 915 are used only to meet the 11.9% price increases for food and drinks.

“The deceleration of the inflation rate is primarily due to the slowdown on a trend basis in the prices of unregulated energy goods (from +26.6% to +20.5%) and, to a lesser extent, of processed food ( from +14.0% to +13.4%), Other goods (from +5.3% to +5.1%) and Transport-related services (from +6.0% to +5.5% )”, says Istat. “These effects were only partially offset by the upward tensions in the prices of unprocessed food (from +8.4% to +8.9%) and housing services (from +3.2% to +3 .4%)”.

The attenuation of the annual growth of manufactured products helps to curb core inflation, which falls from 6.2 to 6.1%. If one looks at the so-called “shopping cart”, the trend remains largely in double figures: from +11.6 to +11.3%.

In the meantime, signs of a cooling down of prices have arrived from Francewhere inflation fell to 5.1% annually against 5.9% in April and 5.5% forecasts.