In this work, using the Bank of Italy's quarterly model, we assess the contribution of the main drivers of the unexpected inflation developments in Italy over the period 2021-23. Four channels are considered: international factors, such as prices of commodities and manufactured goods and foreign demand; exchange and interest rates; fiscal policy; unexpected domestic demand.
Most of the unexpected changes in inflation are attributable to the extraordinary increase in international prices, particularly of energy commodity prices. The fiscal measures designed to contain the cost of energy have mitigated the impact in the 2021 and 2022; subsequently, monetary policy contributed to the decline of inflation. The inflationary pressure arising from the unexpected growth in domestic demand had limited effects.
