Italian inflation sees slight increase in June

The preliminary release of June inflation data confirmed both the consensus and our expectations, pointing to a marginal uptick in the headline yearly measure to 1.7% (from 1.6% in May). This mainly reflected upward pressures from food prices and transport services, which outweighed the negative impact of energy prices.

Core inflation, excluding energy and fresh food, rose to 2.1% in June (from 1.9% in May), and harmonised inflation was stable at 1.7%.

With goods inflation up to 1% (from 0.8%) and services inflation up to 2.7% (from 2.6%), their differential shrank only marginally. Wage growth, a key driver of services inflation, has been decelerating to 3.4% since the March 4% peak. If this trend persists, the pressure on service prices is likely to continue easing throughout the rest of the year.

When examining three-month-ahead pricing intentions in service sector surveys, we observe a slight cooling trend since April, possibly anticipating a modest slowdown in services inflation over the rest of the summer.

On the goods front, prices will likely remain subject to the vagaries of energy prices and, in turn, to developments on the geopolitical scene. After the volatility peak in oil prices in the immediate aftermath of the US strikes on Iran's nuclear plants, oil prices have stabilised recently. We are not ruling out a gradual uptick in the energy component over the next few months, mainly due to gas prices.

As far as prices of other non-energy/non-food goods are concerned, we do not expect substantial accelerations, given subdued demand conditions. Private consumption looks set to improve only gradually, as are investments, where contrasting forces affecting the different components and an uncertain economic backdrop are still weighing. Manufacturing business surveys seem to support this view: the three-month-ahead pricing intentions indicator peaked in March, but has gradually decelerated ever since.

All in all, today’s inflation release still fits with our current forecast of headline inflation hovering between 1.5% and 2% over the second half of the year, and we confirm our forecast for average inflation at 1.7% over the whole of 2025.