The Italian Inflation
Among industrialized market economies Italy had one of the highest rates of inflation in the 1970s. Until the discipline of fixed exchange rates ended, its inflation was roughly comparable with that of France, West Germany, and the United Kingdom, countries that are similar to Italy in terms of size, trade relations, and social and institutional arrangements. The inflationary experiences of these highly interconnected economics from 1967 through 1979 are contrasted in table 15-1. Roughly speaking the 1967-72 period was one of uniformly increasing inflation; 1972-76 witnessed an inflationary explosion in Italy and the United Kingdom; and in 1976-79 the four countries had varying degrees of success in their stabilization policies.
The first period is not the most revealing time span for singling out the uniqueness of the Italian wage and cost spurt around the turn of the decade.1 After 1969, labor costs rose exceptionally quickly, thus placing profit margins under a pressure that exploded once the ceiling of the fixed exchange rate was removed early in 1973. Nevertheless, the different national inflationary experiences remained largely uniform until the 1973 world boom. Thereafter divergence became a major characteristic. It was only after 1972 that the Italian (and British) rates of inflation shot up well above the European average. But this was a novel experience, for throughout the 1950s and 1960s the Italian economy demonstrated a fairly good record of price stability.
Omitting the wage and price boom of the early 1960s with which the "Italian miracle" ended, the only noticeable inflation between 1956 and____________________