Italian inflation's decline continues



City CPI (November)
Actual: +0.2%mom, +2.4%yoy
UBS Warburg: +0.2%mom, +2.4%yoy
Consensus: +0.1%mom, +2.3%yoy
Previous: +0.2% mom, +2.5%yoy



Italian inflation continues its steady downward trend. This will go on. 
Producer prices inflation is falling even faster than CPI inflation. 
Moreover, wages remain muted, increasing slower than inflation this year. 
With the ongoing weakness of domestic demand all ingredients are thus in 
place for further fall in inflation.



* Based on the city CPI, we see Italian prices up 0.2% in November 
(possibly only 0.1%), and inflation is likely to lose a further decimal 
point at 2.4% (possibly 2.3%). If confirmed, this would be the seventh 
consecutive fall in inflation and the lowest level of reached since April 
2001.


* We see inflation down in the coming months. The decline in domestic 
demand will create more spare capacity, and the fall in commodity prices 
will also help. Underlying pressures should thus unwind helping core 
inflation down.


* The breakdown suggest that the transportation sector register a large 
fall in prices. This is the direct effect of falling oil prices. Despite 
the removal of the tax credit on fuel, gasoline prices have indeed 
declined. Data also provide some evidence that food prices are also 
receding to a more normal level.



St?phane D?o
Economic Research
UBS Warburg
Tel : +33 1 48 88 30 36
Fax : +33 1 47 63 48 08
Mob : +33 6 76 85 33 18
Stephane.deo@ubsw.com