IMF: Inflation to remain within 3ѱ percent target band

TIRANA, Dec. 6 – Administrative price increases over the next two years may drive headline inflation temporarily above the 3ѱ percent target band in the near term. However, underlying inflation is expected to remain under control, and annual inflation is also expected to remain within the band. The conclusions are made in a recently published IMF working paper called “What can low-income countries expect from adopting inflation targeting?” also covering Albania as the latest addition to the inflation targeting family.
Over the past decade, Albania has managed to maintain its headline inflation largely within the BOA 3+/-1 percent target range. Recently, during the crisis inflation rose above 4 percent mainly due to depreciation pass-through and higher electricity prices, says the report.
The Central Bank of Albania (BoA) has been preparing for adopting inflation targeting since
2004. Implementation was effective in 2009. The inflation target for the 2009-2011 period is set at 3.0 percent, with a symmetrical tolerance band of +/- 1 percentage points. The inflation target will be measured by the annual rate of change in the Consumer Price Index. The inflation target is applicable throughout the 2009-2011 period, implying that the actual inflation rates may temporarily deviate from target. This deviation, according to the BoA is acceptable given that the economy may be hit by external shocks or unforeseen circumstances beyond the control of the central bank. To enhance its Inflation targeting framework, the BoA has taken several steps to making its communication policy more effective, expanding its information set, and improving its inflation forecasting methodologies. Besides these achievements, significant progress has been made in the area of central bank independence.
Since 1992 the Albanian economy experienced high growth rates, significantly higher than other transition economies. These rates also persisted in the 2000s but were in line with Central and Eastern Europe (CEE) -growth averaged around 6 percent over the past five yearsطhen Albania implemented its inflation targeting framework.
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