The drivers of inflation dynamics in Italy over the period 2021-2023

Davide Delle Monache () and Claudia Pacella ()
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Davide Delle Monache: Bank of Italy
Claudia Pacella: Bank of Italy

No 873, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper, we use the Bank of Italy's quarterly model to decompose the pattern of inflation in Italy over the 2021-23 period into the contributions from its most important drivers: international factors, like the prices of commodities and manufactured goods and the foreign demand; exchange and interest rates; fiscal measures; pressures stemming from unexpectedly strong domestic demand. Most of the increase in inflation in 2021-22 can be attributed to the direct and indirect impact of the extraordinary rise in international prices, which also drove the decline in 2023. Fiscal support measures helped to contain the impact of energy commodity prices on inflation in 2021-22, but their effect was reversed in 2023. Monetary policy contributed to dampen inflation, especially in 2023. Finally, the inflationary pressures arising from the unexpectedly strong growth in aggregate demand and employment were overall contained over the period 2021-23, partly as a result of a sluggish adjustment of wages.

Keywords: inflation; energy prices; macro-econometric model; policy simulations (search for similar items in EconPapers)
JEL-codes: C32 C53 E31 E37 (search for similar items in EconPapers)
Date: 2024-10
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_873_24

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