(Bloomberg) -- Italy's pensions will increase by 7.3% from next year to keep up with rising inflation, Finance Minister Giancarlo Giorgetti said on Wednesday.
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The boost to retirement payments, which is automatic in contrast to wage hikes, will bring relief to households hit by soaring energy costs in the European Union's third-biggest economy but may further complicate the European Central Bank's efforts to rein in consumer prices.
Overall, spending on pensions will increase by more than €50 billion ($50.4 billion) through 2025, the minister said.
Giorgia Meloni's newly installed administration is trying to balance a prudent fiscal approach that keeps debt yields in check with sticking to expansive electoral promises. The government is aiming to reduce taxes slightly next year, particularly for the self-employed and individual businesses.
Read more: Italy Raises Deficit Targets to Finance €30 Billion Energy Aid
Higher ECB interest rates will lead to €3.6 billion of extra borrowing costs in 2023, Giorgetti said. He estimates the impact of a 100 basis-point hike at almost half a percentage point of Italy's gross domestic product over three years.
"The government intends to support the sacrifices being made with a prudent and responsible approach that allows us both to improve the economic prospects of our country and guarantee the sustainability of public finances," Giorgetti said.
Inflation in Italy, which is currently at 12.8%, is forecast to slow to 6.5% for 2023, according to the country's central bank.
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