Direction of Foreign Trade -Falling Wholesale Prices and Rising Cost of Living

«The Economist», 14 maggio 1921, p. 976

Turin, May 9

The publication of our foreign commerce statistics for December last gives the data for completing the figures given in my letter published in the Economist of April 2, 1921. Our foreign commerce amounted in 1920 to 29,862.1 million lire in imports, and to 2,803.2[1] in exports. What countries have contributed most to these totals may be seen from the following figures:

Great Britain, India, United States, and Argentina are our great providers of food and raw materials, but from Germany also we bought much more than we could manage to sell.

Commodity prices, according to the calculation of Professor Bachi, in the Economista of Florence and Rome, are continuing to descend. The new index is based on the prices of 1920 (made equal to 100), but for the sake of comparison with your index numbers, in the last line is added another general index calculated on the basis of 1901-1905:

These are wholesale prices. As usual, retail prices lag behind, so that the cost of living is increasing. The weekly budget of a workman’s family of five (two adults and three boys) is calculated as follows at Turin:

The greatest increase has taken place in food items, owing to the belated rise in bread from 1.10 to 1.40 lire per kilo, and in pastry from 1,20 to 2 lire per kilo. The rise in the bread price caused no sensation. The bread subsidy problem seems to be solving itself with the minimum of friction, owing to lower prices of wheat in the U.S. and to better foreign exchanges. Last year the Government sold wheat at 60 lire per quintal to bakers the same wheat which they bought at 110-120 lire from national producers, and at 250-300 lire from foreign sources, and the bread subsidy caused a loss of 6-8 billion lire to the Italian exchequer. Next financial year, 1921-1922, the Government will sell the wheat to bakers at the same price at which they will buy from internal producers, i.e., at 150 lire per quintal. As, however, the foreign imported wheat costs today only 110-120 lire, c.i.f. Genoa, the Government will recoup themselves of a part of the loss sustained in past years. The situation is thus simply reversed. Instead of losing, the exchequer will gain from the wheat monopoly, and whereas the monopoly aimed in past years at a subsidisation of bread consumers, it will next year be in effect a subsidy to agriculture. This makes all the more difficult the abolition of the wheat monopoly, as the Government for the sake of inducing agriculturists to grow much wheat, promised that the price for the 1921 harvest would be 150 lire per quintal. The agriculturist says that the promise must be fulfilled. But the rise in the cost of living makes workers and public servants unrestful, and desirous for a rise in wages and salaries. This week public servants in Rome held meetings, and threatened strikes and obstructions; and as general elections are at hand, the Government had to give way and promise a general revision of salaries, with a minimum rise which will apparently amount to 200 lire monthly. The State can raise salaries, because the yield of taxes is expected to rise. But private industry, which is obliged to face a falling market, cannot concede new increases in wages. If wages are as yet not openly reduced the end is obtained by reduced working hours and fewer men are employed.