TIRANA, July 8 – Albania’s inflation rate hit a five-month high last June when it picked up to 1.2 percent, but yet remaining significantly below the central bank’s 3 percent target estimated to have a positive impact on the country’s economic growth.
The consumer price recovery was apparently triggered by a pickup in global food and oil prices, rather than domestic consumption which continues remaining sluggish due to ongoing perceived uncertainties by both households and businesses. Global oil prices recovered to about $50 a barrel last June while the FAO Food Price Index was up by 4.2 percent compared to last May, increasing for the fifth month in a row.
A report published by the country’s state statistical institute, INSTAT, shows consumer prices accelerated to 1.2 percent last June after ranging from 0.2 percent to 0.7 percent in February-May 2016, when they sparked deflation concerns which the country’s central bank downplayed with the sharp decline in international oil and food prices. For the first half of this year, consumer prices increased by a mere 0.7 percent, hitting a 16-year low.
“Food and non-alcoholic beverage” prices, the key item in the consumer basket, rose by an annual 2.7 percent last June while the contraction in transport prices slowed down to 3.6 percent as global oil prices picked up.
The country’s sluggish domestic consumption, is also reflected by an ongoing slight decline in garment and footwear prices and prices of “furniture, household appliances and home maintenance” at only slightly above zero.
The Albanian economy registered a significant recovery in 2015 when the GDP grew by 2.6 percent but consumption turned to negative growth rate and unemployment rates registered only a modest decline.
Household consumption contracted by 0.17 percent in 2015 following modest growth rates of 0.13 percent to 2.68 percent in the previous five years while the unemployment rate slightly dropped to 17.7 percent at the end of 2015 compared to a decade-high of 18 percent in 2014, according to INSTAT.
Central bank governor Gent Sejko has explained the drop in consumption as a saving trend by consumers and a psychological effect in times of uncertainty.
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 disinflation and deflation situation has also affected regional countries and the euro area where the drop in international oil prices has been better reflected due to their lower tax burden on fuel. At €1.17/litre, Albania had the world’s 16th most expensive diesel prices this week, much higher even compared to Germany and France, according to Global Petrol Prices portal.
The central bank says the gradual recovery of the Albanian economy will also lead to a gradual recovery in consumer prices and inflation rate is expected to pick up to its 3 percent target by late 2018. The low inflation pressure has allowed the central bank to cut the key rate to a historic low of 1.25 percent in a bid to boost sluggish consumption, but its easier monetary policy has been poorly reflected as lending continues remaining at modest negative growth rates.
Albania has one of Europe’s lowest consumer prices but suffers the poorest consumption per capita, according to a report by Eurostat, the statistical office of the European Union.
