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 Disinflation in Italy: 1980-1997


Ignazio VISCO * Former Governor, Bank of Italy. Contact: ignazio.visco@bancaditalia.it.This article summarizes some of the analyses contained in Visco (2023a). For a discussion – not independent of those analyses – of issues related to the role of monetary policy in countering the more recent inflationary pressures, see Visco (2023c). The author is grateful to Massimo Sbracia and Alessandro Secchi for their views and analytical support, and he thanks Hans-Helmut Kotz for his helpful suggestions on a first version of this article.

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…