Inflation lowers to 1.7%

Tirana Times
By Tirana Times March 12, 2019 11:54

Inflation lowers to 1.7%

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  • The lowering of the inflation value in Albania seems to have been derived from currency exchange rates, because the prices haven’t really dropped.

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TIRANA, Mar. 11- As the European currency euro remains unstable following another dropping against Albanian lek this week (as of March 11), together with lowered consuming from the citizens have added to a lowering on the level of inflation in Albania to 1.7 percent for Feb. 2019. This data is issued by the Albanian Institute of Statistics, INSTAT.

The objective by the bank of Albania for the inflation level is to remain at 3 percent. According to data issued by INSTAT, comparing to Jan. 2019, the value has dropped by 0.6 percent. Comparing to Feb. 2018 the change amounts in 2.1 percent.

A higher inflation means a country’s money supply grows faster than production in that country, making the average price to rise as a result of the increased demand for goods and services. It can be caused by higher costs being charged on to the end-user, or higher tax rates. These price rises cause the value of money to fall. You can therefore buy less with the same amount of money. But this does not need to have an immediate effect on purchasing power. Purchasing power only declines if wages rises less rapidly than prices.

A 2 to 3 percent ratio of inflation is considered to be a normal level. Such low inflation is beneficial for the economy as it encourages consumers to buy goods and services and makes it more appealing to borrow money, as interest rates are usually lower during periods of low inflation. Therefore, a lower inflation is an important goal for governments and central banks because of the economic benefits.

There is also another occurrence, deflation, which is negative inflation. Deflation causes the real price level falls, leading to buying more goods with the same amount of money as time passes. However, deflation can sometimes be bad for economic growth because it is very likely that consumers will postpone their purchases because they expect to have to pay less for them in the near future. Deflation is usually an indicator of a country’s declining economy.  

It’s hard to tell whether what is going on in Albania is just a lowering of inflation, or deflation. A lowering of inflation would probably lead to a better economy on the long-term, whereas deflation would be a pointer of a bad economic governance. The lowering of the inflation value in Albania seems to have been derived from currency exchange rates, because the prices haven’t really dropped. The data provided by INSTAT calculate the Consumer Price Index (CPI) in Albania. CPI measures the relative changes in prices of goods and services consumed by the families. It is calculated by using final consuming structure on which each family spends. The data is appropriated by the Family Budget Survey.

As of Feb. 2019 the annual price increases has been mainly affected by “Foods and non-alcoholic beverages” by 1.37 percentage points and “Housing, water, electricity, gas and other fuels” by 0.18 percentage points. There has been an increase in prices of other consumer goods and services groups, such as “Alcoholic beverages and tobacco” and “Recreation and culture” by 0.05 percentage points.

The prices of “Hotel, coffee-houses, and restaurants” increased by 0.04 percentage points, “Education service” increased by 0.02 percentage points, and groups “Furniture, household goods, and maintenance” with “Miscellaneous goods and services” increased by 0.01 percentage points.

The data shows that there are consumer groups that experienced a dropping in prices such as “Healthcare” decreased by 0.02 percentage points, and “Clothing and footwear” together with “Transport” have decreased by 0.01 percentage points.

Apart from the CPI, there is also another index called the Harmonized Index of Consumer Prices (HICP). It is a consumer price inflation index that measures the change over time in the prices of consumer goods and services acquired, used or paid for by euro area households. It is called harmonized because it is uses the same methodology for all EU countries. Thus, allows a better inflation comparing amongst EU countries, to ensure price stability. INSTAT defines the HICP as the change in retail prices of goods and services based on the consumer’s expenses on the final product.

As of Jan. 2019 the annual HICP change was calculated at 2.4 percent with the largest contributor to the value was the group “Food and nonalcoholic beverages” with an increase by 5.4 percent. It is then followed by “Hotel, coffee-houses, and restaurants” with an increase by 2.9 percent, “Recreation and culture” increased by 1.8 percent, “Alcoholic beverages and tobacco” by 1.1 percent, “Housing, water, electricity, gas and other fuels” increased by 0.5 percent, and “Miscellaneous goods and services” followed a 0.4 percent increase.

Consumer groups that experienced a decrease in prices were “Transport” by 0.6 percent, and “Clothing and footwear” with “Healthcare” by 0.5 percent.





Tirana Times
By Tirana Times March 12, 2019 11:54