Household consumption in Italy: basket composition and responsiveness to macroeconomic shocks

We study how the composition of household consumption shapes the transmission of macroeconomic shocks in Italy. Over the last two decades, household expenditure has shifted from goods towards services. We show that the transmission of shocks is better understood by combining the goods-services distinction with the distinction between essential and discretionary spending. The response of household consumption is almost entirely concentrated in discretionary items, but the timing of adjustments differs markedly across components. Following a monetary policy shock, discretionary goods respond relatively quickly, whereas discretionary services adjust with a substantially longer lag and greater persistence. By contrast, energy shocks lead to a much faster adjustment in discretionary consumption, in line with their more immediate impact on consumer prices and households' purchasing power. These findings suggest that monitoring discretionary goods and services separately is crucial for assessing the intensity and timing of shock transmission in the economy.