“The 3 percent targeted inflation rate and the monetary policy applied for its achievement, positively affects the stability of economic growth rates, as has been proved in recent years,” says the Bank of Albania in its 2012-2014 monetary policy document.
TIRANA, Feb. 7 – Albania’s annual inflation hit another record low of 1.6 percent in Jan. 2012, standing far below the central bank’s target of 3 percent which has been set as the ideal rate positively contributing to the country’s economy’s growth. The inflation rate standing at below 2 percent for the second month in row, in Dec. 2011 it was at 1.7 percent, signals a sharp drop in domestic consumer demand for Albania, a net importer, despite global food prices on a downward trend, and harsh times for the Albanian economy in 2012 as the Eurozone is expected to plunge into mild recession.
“The Bank of Albania estimates that by preserving the inflation rate around the 3 percent rate, the monetary policy will continue having positive contribution to the development of the Albanian economy. This targeted inflation rate and the monetary policy applied for its achievement, positively affects the stability of economic growth rates, as has been proved in recent years,” says the Bank of Albania in its 2012-2014 monetary policy document.
Latest INSTAT data for Jan. 2011, show vegetable and potato prices were down by 13.8 percent y-o-y while fruit prices up by 8.3 percent. Coffee and tea, the most popular drinks in Albania’s plentiful bars have also undergone an 8.1 percent increase.
Medicine prices were up 5 percent compared to Jan. 2010 just before a 10 percent VAT was imposed on them.
Based on calculations from INSTAT data, the 1.7 percent inflation rate registered in Dec. 2011 takes annual inflation rate for 2011 at 3.45 percent, down from 3.6 percent in 2010.
Inflation rate during the second half of 2011 remained at an average of 3 percent meeting the Bank of Albania’s 3ѱtarget band. However, during the first half of 2011 inflation was at an average of 4.05 exceeding the central bank’s target by 0.05 percent, a situation which forced the Bank of Albania to raise the key interest rate to 5.25 percent in order to reduce inflation pressures.
Back in 2009, when the Albanian economy remained one of the few to register positive growth, inflation rate stood at 3.7 percent. However, in 2008 just before the global crisis broke out the Albanian economy grew by 7.5 percent with inflation rate at a record low of 2.2 percent.
Basic food prices soar
As the crisis in the Eurozone escalates with less remittances and FDI for Albanians, sources of income for thousands of households have dropped while the cost of living is on the rise. INSTAT data show food and non-alcoholic beverages accounted for around 45 percent of monthly expenditure for an average family of four back in 2006 and 2007.
However, INSTAT data show food and non-alcoholic beverage prices have grown by 17.4 percent from 2006 to 2011. Within this group, bread and cereal prices, which make up 15.5 percent of a household’s monthly expenditure, have risen by 50 percent during the past six years.
With official unemployment rate at 13.25 percent, the minimum monthly wage at 20,000 lek (Euro 145) and the average state and village pensions at 12,000 lek, and 6,650 lek respectively, ordinary Albanians are finding it more and more difficult to make ends meet.
In 2007, the average monthly income of Albanian households was at 38,141 lek corresponding to 10.884 Lek per capita. In urban areas the average income for a household is about 45,000 Lek, versus 31,500 Lek in rural areas. The main component of a household’s income is regular income from paid employment, at around 35 percent of the total, followed by income in private agricultural and non-agricultural sector with 33.4 percent. Remittances occupied 11.8 percent of a total household income and pensions 13.4 percent. Other components include incomes from property, according to an INSTAT survey.
The results of another INSTAT survey carried out in 2006-2007 show the average monthly expenditures are estimated to be 69 thousand Leks, taking in consideration a household composed by 4 persons.
Considering the monthly expenditures per capita, in the reference year 2006-2007, it was revealed that a person spends about 17 thousand Leks per month with the majority 9,000 lek on food.
Food (excluding alcoholic beverages), remains the most important product in a household’s budget, with 47.6 percent of total consumption. Within this group, expenditure on meat account for 22.5 percent, followed by ‘milk cheese and eggs” with 16.1 percent, and “bread and cereals”, with 15.5 percent. Expenditure on vegetables and fruit make up 14 percent and 8.8 percent respectively.
Survey results show the region of Tirana has the highest household consumption with 83,817 Leks, followed by regions of Durr쳠and Gjirokast첬 with 82,905 Leks and 82,815 Leks respectively. The northern Dibra and southern Berat regions had the lowest household consumption with 51,262 and 54,146 Leks each.
Gaps of income A recent regional accounts report, the first of this kind published by INSTAT, has revealed the huge gaps of income and welfare across Albania’s 12 administrative regions. The report shows that in 2009 the region of Tirana, where 25 percent of the country’s 3.2 million population lives, accounted for 37.9 percent of the Gross Domestic Product while the GDP per capita was 51.2 percent above the country’s average. “Some of the main factors are the concentration of gross value added of the construction branch, the concentration of services sector (banking, insurance, and telecommunications), high compensation of employees and high rate of commuting from other prefectures,” said the report. Tirana’s GDP per capita in 2009 was at 4,126 Euros, 2.2 times higher than the GDP per capita of the northeastern region of Dibra, the country’s poorest. Second came the region of Durres with a GDP per capita of 2,566 Euros, accounting for 94 percent of Albania’s 2,728 Euros per capita. The report also reveals the gaps between central Albania (the regions of Tirana and Elbasan) and northern and southern Albania where GDP per capita differs by 1,500 Euros per inhabitant.
Price levels compared to EU
Albania’s price levels for consumer goods and services are among the lowest in Europe but remain high compared to the country’s revenues. A recent report published by Eurostat, the statistical office of the European Union, showed price levels for consumer goods and services in Albania during 2010 were at 50 percent of the EU 27 average, the second lowest in the 37 country list after neighboring Macedonia.
Food and non-alcoholic beverages are priced at 70 percent of the EU 27 average, the same to EU member Poland, and higher compared to Bulgaria, Romania, Macedonia and Serbia.
Latest Eurostat data show Albania’s GDP per capita dropped to 2,661 Euros in 2009, down from 2,784 in 2008, remaining better only compared to Kosovo which registered 1,790 Euros. Bosnia and Herzegovina, which is also benefiting from visa free travel in the Schengen area, had a GDP per capita at 3,192 Euros compared to the EU 27 average of 23,500 Euros.
Albania’s Gross Domestic Product (GDP) per person expressed in purchasing power standards (PPS) in 2010 was less than one third of the EU-27 average and remains even below regional competitor Bosnia and Herzegovina, according to Eurostat.
Data show Albania’s GDP per inhabitant in PPS climbed from 23 percent of the EU-27 average in 2007 to 26 percent at the end of 2008 before reaching 27 percent in 2009 and 29 percent in 2010.
Albania’s GDP in 2009 dropped to 8.5 billion Euros, down from 8.8 billion in the previous year reflecting the effects of the global crisis.
2011 global price index up 24%
Global food prices declined 8 percent between September and December of 2011 due to increasing supplies and uncertainty about the global economy, but still remain volatile and high with the 2011 annual index 24 percent higher than its average in 2010, according to the World Bank Group’s latest Food Price Watch.
While the first quarter of 2011 witnessed sharp increases, five consecutive months of decreases at the end of the year drove the World Bank Food Price Index 7 percent below the December 2010 levels, and 14 percent lower than its February peak. Nevertheless, global prices remain high with the 2011 annual index averaging at 210 points against 169 points average in 2010.
According to the quarterly Food Price Watch report, despite the downward trend over the last few months, global prices of key staples continued experiencing volatility, and the average annual prices of wheat, maize and rice well exceeded averages for 2010. Domestic food prices also experienced sharp increases in many countries from December 2010 to December 2011.
“The worst food price increases may be over but we must remain vigilant,” said Otaviano Canuto, the World Bank Group’s Vice President for Poverty Reduction and Economic Management (PREM). “Prices of certain foods remain dangerously high in many countries, leaving millions of people at risk of malnutrition and hunger. Governments must step up to the plate and implement policies to help people cope.”
Prospects for decline in 2012 food prices remain favorable, due to weaker consumer demand as a result of a sluggish global economy, expected declines in the price of energy and crude oil, and strong forecasts for 2012 food supplies, says the World Bank.
