TIRANA, Jan. 8 – Inflation rate hit a three-year low of 0.7 percent in December 2014, hinting sluggish demand and consumption and deflation risks considering the central bank’s inflation target of 3 percent. The last time inflation was at a lower rate was in February 2012 when it hit a record low of 0.6 percent.
Declining oil prices fuelled by a sharp cut in global prices had a major impact. Diesel and petrol prices dropped by 7.6 percent and 5.9 percent in December 2014 compared to month earlier, according to INSTAT.
The health group registered a 5.3 percent annual decline due to a 6.2 percent drop in medical prices and an 8.6 percent decrease in hospital services. The decline is a result of the lift of the 10 percent VAT on medicines and health services since April 2014.
Annual inflation rate in 2014 is estimated to have dropped to 1.6 percent, down from 1.9 percent in 2013 and 2 percent in 2012, but far lower compared to 3.5 percent in 2011 and 3.6 percent in 2010.
Meanwhile, inflation in the eurozone turned negative in December 2014, driven mainly by lower energy costs due to the plunging price of oil.
In its monetary policy report for the third quarter of this year, Albania’s central bank says that from a macroeconomic point of view, the low levels of inflation rate continue reflecting mostly the presence of non-utilized production capacities, which dictate slow growth in labour and production costs. “In addition, the low inflation rate has also been influenced by declining inflation in partner countries, expectations for low inflation rates as well as low liquidity pressure on the economy.”
The central bank expects inflation rate to range between 1.1 to 3.7 percent in the next four quarters.
Albania’s central bank estimates that by preserving the inflation rate at around the 3 percent rate, the monetary policy will continue having a positive contribution to the development of the Albanian economy. “This targeted inflation rate and the monetary policy applied for its achievement, positively affects the stability of economic growth rates as has been proved in recent years,” says the central bank.
“Research has indicated that inflation has a statistical trend of registering positive values. In reality, the target of preserving an unchanged price level, i.e an inflation rate close to zero could correspond to a deflationary situation,” says the Bank of Albania in its 2012-2014 monetary policy document.
Since September 2011, the country’s central bank has cut the key interest rate in twelve consecutive moves by 0.25 percent each time to a historic low of 2.25 percent, but the moves have mostly been reflected on lower interest rates for lek-denominated deposits and T-bill yields, which have almost halved during the past year, while interest rates on lek-denominated loans have registered only a slight decline.
The low levels of inflation rate have been accompanied by slower growth in the past couple of years.
