Disinflation in Italy: 1980-1997
After the high inflation associated with the two oil shocks of the 1970s, a gradual process of disinflation took place in Italy over the following fifteen years. This paper examines the extent to which central bank autonomy, effective and innovative income policies and contractual agreements, and finally the long-delayed achievement of meaningful budgetary control all played a role in the return to monetary stability.
Prologue: 1973-1979In the 1950s and 1960s, Italian inflation fluctuated around contained average values, on the order of 3%. This was followed in the 1970s by widely variable rates of change in consumer prices, which beginning in the second half of 1972 were consistently in double digits (see Figure 1 below). In particular, the oil crisis of 1973-1974 connected with the “Yom Kippur” war caught the Italian economy in a phase of sustained expansion of aggregate demand, of social and political tensions, and of strained industrial relations, which had already produced strong upward pressures on wages and prices after the “hot autumn” of 1969. Furthermore, the rise in oil prices, which quadrupled between 1973 and 1974, also came at the time of a sharp depreciation of the lira, which took place when Italy exited from the “snake”1 among…