TIRANA, March 15 – The country’s central bank has downplayed risks related to the deflationary situation Albania is facing after consumer prices hit a 13-year low of 0.2 percent last February, sharply below the Bank of Albania’s 3 percent target.
“Albania risks no deflationary situation, the February inflation rate at 0.2 percent was among the lowest registered in recent years, but is not at negative rates,” central bank governor Gent Sejko said this week.
The central bank says the situation is mainly a result of a sharp cut in international oil and food prices.
“The drop in oil prices initially in international markets and more recently even in Albania, has affected the inflation rate between 0.5 percent to 1 percentage points,” says the central bank.
“The inflation drop is mainly a result of the decline in international oil prices and not any drastic cut in consumption. The Albanian economy and the inflation rate remain below potential but on the other hand we expect economic growth to be higher in 2016,” governor Sejko said in TV interview.
However, some investors and experts blame the situation on the unfavourable business climate which continues holding back business investments and consumer spending.
Stefan Pinguli, one of the country’s biggest beer producers, says the frequent changes in tax legislation and repeated inspections by the tax administration are having a negative impact on businesses.
“We are facing such an intensive change in laws and taxes that we are not orienting ourselves. This has a triple effect, a psychological effect, financial pressure and physical pressure with inspections and re-inspections,” said Pinguli.
Adrian Civivi, an economy expert and former member of the central bank supervisory council, says the frequent tax changes and lack of clarity in economic development policies is pushing both businesses and households to postpone big investments and purchases.
“The investment climate and economic security should improve. But even if this measure does not yield the expected results, maybe it is bit tough for the Albanian economy and our budget, but we should think of policies supporting consumption,” Civici told a local TV.
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 disinflation 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.
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.
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.
