Devaluation of Leek hinders consumer’s advantage

Devaluation of the Albanian local currency, the Albanian Leek (ALL), has removed any advantage that could have been felt in the Albanian local market by the fall over the last quarters of commodity prices, reports the local press, based on recent data furnished by the Bank of Albania (BoA). That retail prices have not fallen, in relationship to the fall of commodity prices is now an agreed on opinion that has been gaining ground in Albania over the last few months. But this was generally believed to be caused by greed from unscrupulous “merchandisers” and not as relying, even partially, on any economic conditions.
Popular belief has it that the local market wants to stay consistent, regardless of the drop in commodity prices. In Albania, the overwhelming majority of the traded articles and commodities are imported.
Devaluation of Leek inhibits lowering of imported articles’ prices
With Albania largely reliant on foreign-produced and imported goods and commodities, the global market of goods and commodities has experienced an overall increase in the last few years and followed by a global melt-down of prices due to the world wide economic implosion. The fact that prices have not changed here in Albania could be due to something other than greed: the devaluation of the Leek. The press quotes the examples of flour and petrol, which have not replicated in the Albanian market reductions observed in the commodities’ international markets (Koha Jon묠15.06.2009). Devaluation of the Leek has made any possible price difference resulting from lower import prices less likely or impossible. Two phenomena have been running parallel: while articles and commodity prices have begun to fall in the international markets, the Albanian Leek has continued to depreciate, making the cost of buying goods higher. This way, the successive falls of the Albanian Leek in the exchange rates have been producing an “appreciation” of the final costs by the increase of the cost of money and not by increase in the cost of raw material or an increase of added value cost. “The last evolutions in the exchange rates have not allowed for the transmittal (conductivity) of the low prices in international markets to the consumer prices in Albania” quotes the press report from the Bank of Albania (BoA).
In one year, the Albanian Leek has lost 9 % to the Euro, compared to June 2008. The analysts do not foresee any appreciation of the Albanian Leek in the near future. Data quoted by Koha Jon롡sses that 70% of the local producers import raw material in Euros or in US Dollars and nearly 95% of the transactions are in foreign currencies and only 5 %, (which the newspaper believes represent mainly wages and taxes going to the state), are carried out in the local currency.
Export’s benefits may increase (as Leek devalues)
But the devaluation of the Albanian Leek might have a better influence on the turnover of local exporters, (though they are by far less numerous), suggests the newspaper. Business editor Blerina Hoxha estimates a benefit increase up to 10% net, due to the devaluation of the local currency. She quotes exports of medicinal plants and minerals as those which have best benefited from the devaluation of the local currency. This estimate may be over-rated since the devaluation assessed by the BoA amounts to only 9% and at the same time any possible extra benefits from exchange rate devaluation would be eroded by price increases and inflation increases at the national level. At the same time, international market prices for the exported articles and commodities may have fallen to a lower degree than former sale quotes, and these exporters may be selling actually at lower prices than a year ago. With petrol prices in Albania staying the same or even, now, rising, exporters may see their advantages falling away. The situation bears watching and further analysis.