Looking ahead, the energy component is unlikely to continue acting as a drag and we expect inflation to rise above 2% again over the winter. The pace at which the central component can decelerate will fundamentally depend on the evolution of consumption.
As the preliminary third quarter GDP estimate also released this morning shows, the Italian economy stagnated during the quarter, with a negative contribution from domestic demand (gross stocks) offset by net exports. Thanks to a resilient labor market and decent wage growth, we suspect that consumption may not have acted as a drag in the third quarter and could potentially draw support over the winter from the impact of falling inflation on real disposable income. This could potentially slow the decline in core inflation through the services component.
However, after today’s publication we are revising our inflation forecasts downward to 5.9% for 2023 and 2.3% for 2024.