Cost-Push and Conflict Inflation: A Discussion of the Italian Case

Abstract

ABSTRACT This study contributes to the ongoing discussion surrounding the recent surge in inflation. It presents an analytical framework and empirically examines inflation trends in Italy. The primary aim is to identify the underlying causes, distributive repercussions, and mechanisms through which inflation is propagated. We adopt a cost-push and distributive conflict perspective on current inflation. Within this perspective, some contributions argue for profit-driven inflation, while others dispute this interpretation, emphasizing that increases in the profit share, amid rising import costs do not necessarily imply heightened overall profitability. To clarify these issues, the paper puts forth an analytical framework that shows how escalating import costs can affect profit shares and set in motion a period of inflation propagation, even in the absence of a wage-price spiral. Turning attention to the Italian context, the study utilizes descriptive statistics, sectoral data, and simple simulations to gain insights into the drivers of inflation and its distributive consequences. Additionally, a local projections analysis is deployed to uncover the nature and timing of the propagation process. The paper concludes with some policy implications based on the findings.