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Italy first time falls in deflation since 1959

Italy slid into deflation for the first time since 1959, data by Italian National Institute of Statistics (ISTAT) showed on Friday.

The national consumer price index (CPI) decreased by 0.1 percent in August compared to the same month last year, according to ISTAT preliminary estimates. Italy's CPI had increased 0.1 percent in July.

The country's economy entered deflation last time in September 1959, when the price index fell 1.1 percent. Yet, at that time the economy was going through a positive trend of growth, ISTAT pointed out.

Several analysts had foreseen the risk of deflation for Italy, and Italian authorities seemed also not unaware of the risk. The inflation, which is defined as the increase in the level of prices for goods and services, had been falling quite steadily in Italy, as well as in the whole European Union (EU), since 2012.

The development did not come unexpected especially after 10 of Italy's biggest cities, among which were Rome, Milan, Turin, Livorno, and Florence, were hit by deflation in July, according to ISTAT official figures released early in August.

ISTAT preliminary estimates came as Italy's cabinet was expected to gather later in the day to approve a key justice reform plan and a package of measures aimed at reducing the red-tape obstructing entrepreneurial activities, and at lifting the economy with incentives to investments, especially in infrastructures.

A clearly worried appeal came however from Italy's leading industries association, Confindustria.

"Our country need a shock treatment, and crucial choices, although painful, are needed in order to bring Italy towards recovery," Confindustria president Giorgio Squinzi declared on Friday.

"If sacrifices are required, we are ready for them. Yet, our sacrifices must be made for a long-term vision, they must have a perspective," the chief of the employers' association said.

The cost of energy, and of fuel especially, weighed on the consumer price index's negative trend in August more than any other component, ISTAT said. Energy price dropped by 1.2 percent compared to August 2013, with gasoline and diesel declining 0.9 and 1.7 percent respectively.

Another key factor that led to the deflationary spiral was the slowdown in the growth of services prices year-over-year, the National Institute for Statistics added.

The so-called ISTAT 'shopping basket,' which comprises prices for food, basic goods and services related to housing and personal care, was also in deflation in August, with a 0.2 percent decrease compared to August 2013. Yet, it showed a moderate recovery from the 0.6 percent drop in July.

A positive signal, although small, came with the families spending index, which rose 0.2 percent in August compared to last year. It was the first increase registered since 2011, ISTAT pointed out.

In a separate report on Friday, the agency of Statistics also confirmed its preliminary estimates of recession. As anticipated on August 6, Italy's gross domestic product (GDP) shrank 0.2 percent in the second quarter of 2014 compared to the previous three months. It also fell 0.2 compared to same period of 2013, whereas the preliminary estimate had shown a 0.3 percent drop.

The GDP had already fallen 0.1 percent in the first quarter.

The data confirmed the euro-zone third largest economy was technically back into recession for the third time since 2008, since its output has contracted for two quarters in a row.

ISTAT finally released data on jobless rates on Friday. The seasonally adjusted jobless rate increased by 0.3 percent, to 12.6 percent in July from 12.3 percent in the previous month.

A small improvement was registered in the youth unemployment rate, which fell to 42.9 percent in July from the record high of 43.7 percent registered in June. It was the lowest level since March, ISTAT said.

[Source: By Alessandra Cardone, Xinhua, Rome, 29Aug14]

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