Which Policies Against Inflation After Covid-19 and the War in Ukraine: The Italian Case

Abstract

ABSTRACT The aftermath of the pandemic crisis and the war in Ukraine have revived the debate on the causes and consequences of inflation, as well as the policies needed to combat its effects. Despite the obvious absence of a role for monetary policy in triggering price rises, the response of monetary authorities, especially in the Eurozone, has been conventional: raising interest rates, with negative consequences for activity levels. In this paper we argue that the inflation episode we are witnessing is a consequence of the attempt by profit-makers to maintain the same (if not higher) levels of profitability as before. It is, therefore, a case of conflict inflation. The policies needed to avoid severe consequences for the weakest sections of the population should be aimed at compensating workers against the loss of purchasing power. In this context, Italy is a case study. It is one of the few advanced countries where there is no statutory minimum wage. Considering data from the main studies on the conditions of Italian workers and building our argument on the most recent economic theory, we stress the need for the introduction of a legal minimum wage in Italy and, in general, for upstream redistribution policies.