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ECO120 – Inflation in Italy


The Republic of Italy or commonly referred as Italy and also known as the Repubblica Italiana by Italian comprises an European Country composed of a peninsula bordered by Alps and has several islands around it Italy is located in Southern Europe and covers an area of 301,340 km2. Based on Worldmeters United Nations, the current population of Italy is 60,518,621 Italian population is equivalent to 0.78 percent of the world’s population and Italy on ranks 23rd from worldwide in the list of countries. Based on population in Italy, the study find that the median age of people is 45.7 years. Italy’s overall demographic trends are still consistent with those of other countries and Italy’s development often parallel with population trends in other European countries. Throughout the centuries, Italy’s population rate has experienced many changes especially after World War II. In mid-19 century, Italy completely unites and creates the movement pattern, south to north and east to west. Once a movement permit has been created, population movement was relatively slight and after World War II, Italy entered a period of revolution when the economic growth and reach high population mobility. The main factor of rural workers abandon their land is Rapid industrialization in the urban centres. The slowing of economic growth has reduced the attraction in the industrial areas, but the movement are still continues until now. An estimated 25 million Italian left the country for looking the job in between 1876 and 1970. Of those, 12 million going outside of Europe. In the 1860s, most people especially farmers, artists, and street traders immigrate to the United States. In 1972, Italy received more people entering the country than leaving because repatriation and immigration from Asia, Africa and Latin America In 2017, the new population of foreigners in Italy reach about five million and more than of who were from non European countries. Italy’s economy comprises a developed industrial north, dominated by private companies and a less-developed, highly subsidized, agricultural south, with a legacy of unemployment and underdevelopment. Italy has a capitalist economy with high per capita GDP and developed infrastructure According to both the International Monetary Fund and the World Bank in 2009 Italy was the seventh largest economy in the world and the fourth largest in Europe Italy is a member of the Group of Eight (G8) industrial nations, the European Union and the OECD. In Italy, food and non-alcoholic beverages calculating 16 percent of total weight, transportation services with 14 percent, restaurants and hotel accommodations in 11 percent along with housing, water, electricity and other fuels for 11 percent are the most important categories of goods and services calculated in the Consumer Price Index. The index also includes such as 9 percent of miscellaneous goods and services, 9 percent as well in health products, 8 percent of recreation and culture goods, 7 percent in clothing and footwear products as well as another 7 percent in furnishing and household equipment Next, alcoholic beverages, tobacco, communication and education contribute to the remaining 7 percent. The annual inflation rate in Italy reduce to 0.2 percent in October 2019 from 0.3 percent in the previous month. Hence, it was remarked as the lowest inflation rate since November 2016. The inflation rate in Italy averaged by 5.95 percent from 1962 until 2019 whereby reaching an all-time high rate of 25.64 percent in November of 1974 and a record low of -0.60 percent rate in January of 2015. Causes of inflation in Italy First one is high debt levels The Italian Government Debt is estimated at 2,357,724 EUR in 2019 as reported by the International Monetary Fund This figure is from the last reported figure of 2,321,957 EUR bn in 2018. As predicted, the Italian Government Debt is projected to be 2,605,866 EUR bn in 2024. This data is updated annually and categorized in CEIC under the Country Forecast World Trend Plus. The second one is low domestic demand In October 2019, preliminary data indicated that domestic demand made a positive, albeit limited, contribution to growth, just about outweighing the negative contribution from the external sector amid the challenging global backdrop Marginally increasing domestic demand suggests downbeat sentiment and gloomy demand prospects restrained business investment, which is further corroborated by stifled credit growth in the quarter. Household spending, meanwhile, likely strengthened somewhat, as suggested by higher consumer confidence, although muted wage growth and some job sheds call for caution. There are many impacts of inflation in Italy. First is high public indebtedness It is a significant wellspring of helplessness for the Italian economy and, given its huge size, it is considered of essential significance for world markets. The very high government debt remains a heavy burden for the Italian economy and a major source of vulnerability The huge supply of public debt infers significant refinancing risk and makes the country exposed to sudden rises in sovereign yields and financial market volatility Lower interest rates and development profits have not been adequately reserved to public debt contraction since Italy joined the euro Next is labour market weakens considerably The work advertise is probably not going to escape from the effect of sluggish financial action, as demonstrated by firms’ curbed work desires The unemployment rate is conjecture to climb near 11% this year, as the new citizenship salary conspire is probably going to initiate more individuals to formally enlist as jobless and hence be included in the labour power Falling labour market participation among young people shows their increasing discouragement Last is external position and export performance Italy’s ongoing fare execution has been to a great extent driven by outer interest advancements The improvement in its consistently balanced current account by 3.3 rate focuses between 2008 and 2013 for mostly reflects Italy’s negative potential development since the beginning of the emergency. In the year of 2013 and 2014, request from some developing markets floundered, while the euro acknowledged again until the first quarter of 2014. As an outcome, Italy’s fare execution towards non-euro territory exchange accomplices endured Steps taken by the government to reduce inflation The Italian government has created several effective systems that can help control the economy such as existing production gaps, exchange rates, moderate import and only slight increases in labour prices. To help counter inflation, Italian banks have taken steps to impose restrictions on domestic and foreign lending They would also freeze foreign currency lending except for credit to boost exports and 12 percent would be deducted from domestic credit growth. A significant shift of the tax burden away from labour has been undertaken. The ongoing reform of the labour market has a potential to address long-standing rigidities and improve the allocation of labour resources. Some progress has been made to improve the education system as well as the governance and resilience of the banking sector. In the year of 2014, the Italian authorities have enacted several structural measures targeted at diversifying firms’ funding sources, decreasing dependence on banks and fostering more resilient financial structures The Italian government has further strengthened the so-called ‘allowance for corporate equity’ (ACE) framework. The Italian government has decided to create a service company to capitalise and restructure of promising Italian industrial firms in temporary financial difficulties That’s all from us! Grazie! Arriverderci!!

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