TIRANA, March 8 – Albania’s inflation rate hit a 13-year low in February 2015 when it dropped to a mere 0.2 percent, significantly below the central bank’s 3 percent target, sparking deflation concerns.
Data published by the country’s state statistical institute, INSTAT, shows the February inflation rate was affected by a significant slowdown in food and non-alcoholic beverage prices, the key item in the consumer basket, and lower shoe and clothes, health and transport prices.
The situation is uncommon since the outbreak of the global financial crisis in 2008 when the lowest inflation rates were registered in February 2012 at 0.6 percent and December 2014 at 0.7 percent.
The last time Albania registered a lower inflation rate was more than a decade ago in January 2003 when consumer prices fell to zero.
Albania’s annual inflation rate slightly accelerated to 1.95 percent in 2015 after hitting a 15-year low of 1.6 percent in 2014, yet standing 1 percent below the central bank’s 3 percent target which is estimated to have a positive impact on the country’s economic growth, according to INSTAT.
The inflation rate was at 1.9 percent in 2013, down from 2.4 percent in 2012 and 1.7 percent in 2011. At the onset of the global financial crisis in 2009, Albania’s inflation rate was at 3.5 percent and slightly accelerated to 3.6 percent in 2010.
The situation hints sluggish demand and private investments, the two key drivers of the Albanian’s growth, at a time when the economy has been suffering poor growth rates of 1 to 3 percent in the past seven crisis years.
An inflation target of 3 percent reflects the development stage of the Albanian economy as a small, open and emerging economy, says the central bank in its monetary policy document.
“Targeting a positive inflation rate takes into account the technological evolution of products and their qualitative improvement. Many studies have proved that, statistically, the inflation rate has a positive value. In practice, keeping inflation close to zero may correspond to a deflationary situation,” says the central bank.
Albania’s central bank expects the inflation rate to remain at about 2 percent in 2016 and return to its 3 percent target only by mid-2018.
Central bank governor Gent Sejko says the low inflation pressure reflects the fact that employment and the capacity utilization rate remain below their potential and that stimulating policies are needed in the mid-term.
“Development in Greece, the low oil and basic product prices and the frequent fluctuations in financial markets have affected demand for Albanian exports and have not encouraged credit growth in the country,” says governor Sejko in the latest monetary policy report.
The low inflation pressure allowed the country’s central bank to cut the key interest rate twice in 2015, reducing it to a historic low of 1.75 percent, but failing to boost sluggish lending and consumption.
The Albanian economy is expected to grow by 3.4 percent in 2016, following growth rates of 1 to 3 percent since the onset of the global crisis in 2009 and a pre-crisis decade of 6 percent.
