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Low inflation shows weaknesses in Italy's economy

2013 inflation hits lowest level since 2009, says Istat

14 January, 16:45
Low inflation shows weaknesses in Italy's economy (By Sandra Cordon) (ANSA) - Rome, January 14 - Italy's annual inflation rate in 2013 averaged just 1.2% - a dramatic drop from the 3.0% average in 2012 that demonstrates a weakness which a business group on Tuesday said reflects pain in Italian households.

Last year's rise in the consumer price index was also the smallest since 2009, national statistical agency Istat reported.

While high inflation is a serious problem for economies, an inflation rate that is too low is often judged to be a sign of intense weakness as it can indicate sluggish demand and growth. The low rate of inflation, combined with weak consumption and economic growth, demonstrates how tightly Italians are being squeezed, said business group Confesercenti.

It also singled out a new municipal tax that is to replace a hated IMU property tax for criticism.

"Families are caught between the anvil of a purchasing power that is struggling to recover - also because of a record unemployment - and the hammer of taxation, especially at the local level," said the group.

"The consequence is that families continue to be prudent, cut consumption and enact behaviors that aim to increase savings".

Confesercenti urged political leaders to "jump-start" the economy by boosting employment, domestic demand, consumption and business investment.

Istat also reported that on a monthly basis, the inflation rate rose slightly - just 0.2% - in December compared with November due to higher food prices.

The slowdown in inflation in 2013 is directly linked to the collapse of household consumption, said the Italian Farmers Confederation (CIA).

About 60% of Italian family incomes are absorbed each month by such basic bills as taxes, mortgages, and other home loans, which means less is available for food, beverages and a few frills, said the CIA.

It said its research shows that more Italians are clipping coupons, searching for discounts and promotions, and buying no-name brands to save money. The broader economic slowdown also cut into federal tax revenues near the end of 2013 as the worst recession since the Second World War was forecast by government officials to be ending. Tax revenue in the first 11 months of 2013 stood at 339.1 billion euros, a "slight drop" over the same period in 2012 when taxes collected reached 340.7 billion euros, the Bank of Italy said.

It also noted that Italian public debt rose by 18.7 billion euros in November to a record high of 2.104 trillion euros. However, the public debt would "very likely" fall when December calculations are available, due to a large budget surplus and a sharp drop in Treasury liquid assets, the Bank of Italy added. The latest numbers came as the President of the European Commission José Manuel Barroso said the recession in parts of Europe may be over but major problems - including high unemployment - linger.

"The recession is behind us, but there is no room for complacency," Barroso said in comments to the European Parliament in Strasbourg.

Because the jobless rate remains too high in Europe, and small- and mid-sized businesses cannot find money to invest to grow, the economic crisis lingers, Barroso added.

But there is still room for hope if nations work together, he added.

"I am sure that 2014 will be a year of positive change for the European economy," he said.

"We will work together to make this happen as soon as possible". Unemployment in Italy touched new record highs in November, Istat said in its most recent jobs report.

Overall unemployment reached 12.7% while youth unemployment hit 41.6%.

Both figures are the highest on record since the current calculation method began in 1977.