Italy hails retail price cap, consumers sceptical

Italian supermarkets have agreed to freeze prices for hundreds of products for the rest of the year in a move the government hailed as a victory against inflation but consumers eyed with caution.

Prime Minister Silvio Berlusconi said some 15,000 shops would hold down prices on at least 600 products under a voluntary accord struck between his industry minister and retail trade groups.

The deal is similar to one agreed in France in June, although unlike the French agreement which saw many prices cut by two per cent, the Italian move freezes prices without necessarily lowering them.

Mr Berlusconi, who has borne the brunt of increasing consumer anger over inflation since the introduction of euro notes and coins in 2002, said the price cap would increase consumers' spending power by 0.7 per cent.

"It means our economic policy should mean an increase in the real purchasing power of families by around 2.2 per cent (in 2005)," he told a news conference.

That growth would depend on the effect of the price hold-down knocking on into next year, salary increases averaging 0.7 percentage points above inflation and a 0.8 per cent boost to pay packets from his planned income tax cuts, Mr Berlusconi said.

Consumer group Altroconsumo, which says around 78 per cent of groceries have increased in price by 20 per cent since October 2002, slammed the price freeze as insufficient to redress the balance.

"There's room for a bigger price cut. Freezing them means consumers are losing out on a chance to save," Altroconsumo said.

The opposition Margherita party said the government really needed to tackle petrol prices, soaring due to near-record crude prices.

Some analysts doubt the price freeze agreement will have a noticeable impact on consumers.

"My impression is that it's more symbolic," said Fabio Canova, an economics professor at Bocconi University in Milan. "It's a good step but it's probably cosmetic."

Mr Canova said to have real effect, the policy needed to be extended to retailers other than supermarkets, should go beyond the end of the year and should ease restrictions on the retail sector especially on price promotions.

Italy still has very rigid regulation of retail pricing and does not allow shops a free hand to cut prices. Promotions and sales are limited in scope and duration by law, something many economists and consumer groups want to see changed.