Italy wrestles deflation

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It was the famous Italian writer Giuseppe Tomasi di Lampedusa who observed that the young feel sorrows much more sharply than the old; the latter are nearer the safety exit. Italy has one of the world’s oldest and most rapidly aging populations – the kind of people who don’t spend.

Prime Minister Matteo Renzi, aged 39, is a revolutionary politician in that his youth, dynamism and relative transparency are shaking up old habits. Yet Italy, a large economy with a huge public debt, is the country causing most worry in Euro zone.

Italy’s unemployment rate unexpectedly rose above 13 percent in October, setting a record as businesses refrain from hiring amid the country’s longest recession since World War II. The youth unemployment rate for those aged 15 to 24 rose to 43.3 percent in October from 42.7 percent in September.

Falling prices eat into company profits and lead to pay cuts and job losses, further depressing demand. Italy is being sucked into a deflationary spiral. Italians, historically big savers, are not spending enough, as they are certain that the prices of goods will fall further down. Italy has fewer credit cards per person than any other country in the Eurozone except Slovakia.

Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes and skeptical the government can improve their economic fortunes; Italians are hoarding their savings and postponing even basic purchases.

Deflation – or continuously falling consumer prices – is considered worse than inflation. To understand how deflation can affect your retirement goals, consult a member of Dino Zavagno’s team of advisers at Gladstone Morgan at info@gladstonemorgan.com

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