The recent increase in maritime transport costs is not expected to lead to significant inflationary pressures in Europe, according to the Bank of Italy. Even in a pessimistic scenario where maritime freight rates remain high, consumer inflation in the euro area would only rise by a maximum of 0.3 percentage points. A less pessimistic scenario would result in a maximum increase of 0.15 percentage points in consumer inflation. In Italy, inflation is expected to decrease to 1.3 percent, mainly due to lower energy prices, before rising to 1.7 percent in 2025 and 2026. Core inflation, driven by unit labor costs, is projected to be 2 percent this year and decrease to 1.7 percent in the following years.
The cost of credit in Italy remains high, which is dampening demand for loans from both businesses and households, according to the Bank of Italy’s economic bulletin. The perception of risk by banks is also contributing to strict lending criteria. Business loans decreased by 3.3 percent in February, particularly for loans with a duration exceeding twelve months, typically used for investment purposes. Small businesses, with fewer than 20 employees, saw a sharper decline in loans compared to larger companies. The overall decrease in loans to households remained stable at around 1.3 percent over the past year, with mortgage loans showing no change compared to the same period in 2023.
Core inflation in the euro area peaked at the beginning of 2023 before steadily decreasing. The Bank of Italy’s economic bulletin highlights a new measure of underlying inflation called Underlying Composite Inflation (Uci). This indicator aims to capture persistent and widespread price dynamics among various components of the consumer basket by eliminating fluctuations with a frequency of less than a year and idiosyncratic movements. Uci core indicators in the euro area and major countries have increased since 2021, reaching a peak in early 2023 before declining. Even though the cyclical trend of the Uci core indicator in Italy, France, Spain, and the euro area has been similar in recent years, the peak levels have varied.
Overall, the Bank of Italy’s economic bulletin suggests that the impact of rising maritime transport costs on inflation in Europe is expected to be limited. In Italy, inflation is projected to decrease initially due to lower energy prices before gradually rising in the following years. The high cost of credit continues to restrain loan demand from businesses and households, with banks maintaining strict lending criteria. Despite fluctuations in core inflation, a new measure called Underlying Composite Inflation (Uci) has shed light on persistent and widespread price dynamics within the consumer basket. While the cyclical trend of the Uci core indicator is similar across major European countries, peak levels vary.
