Inflation rate climbs to BoA’s lower limit target of 2%

At an average of 1.8 percent for the first eight months of this year, the inflation rate continued remaining below the central bank’s lower limit of the target range of 2 to 4 percent, a situation reflecting sluggish internal demand which is the key driver of Albania’s growth.
TIRANA, Sept. 10 – Albania’s inflation rate recovered in August 2014 after staying below the central bank’s lower limit of the target range of 2 to 4 percent for the previous four months, a situation unveiling that both consumption and private investments remain sluggish.
Data published by the country’s state statistical institute, INSTAT, shows the inflation rate was up by 2 percent year-on-year in August 2014, the peak of the tourist season, yet remaining below the central bank’s mid-term target of 3 percent. Albania’s central bank estimates that by preserving the inflation rate at around the 3 percent rate, the monetary policy will continue having a 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 central bank.
Data published by the country’s Institute of Statistics this week show inflation rate rose to 2 percent in August 2014, up from 1.8 percent last July and 1.8 percent in August 2013, fuelled by a 3.2 percent rise in food and non-alcoholic beverages, the most important item in the consumer basket. The biggest annual price increases in August 2014 were reported in “different goods and services” with 7.8 percent, mainly as a result of sharp rise in compulsory auto insurance, followed by “alcoholic beverages and tobacco” with 7.1 percent due to a 12 percent increase in tobacco prices fuelled by higher excise taxes.
Food and non-alcoholic beverage” prices, the most important item in the consumer basket accelerated to 3.2 percent compared to August 2013 while prices of “hotels, coffee bars and restaurants” rose by 1.9 percent year-on-year. The biggest price decreases were reported in health, “clothes and footwear” and communication, with prices down by 5.6 percent, 2.3 percent and 0.8 percent respectively, INSTAT reported. The significant drop in health prices is a result of the lift of the 10 percent VAT on medicines and health services since April 2014.
Food and non-alcoholic beverages had the biggest impact in the annual price increase with 1.25 percentage points, followed by different goods and services with 0.38 percentage points and alcoholic beverages and tobacco with 0.26 percent.
“Research has indicated that inflation has a statistical trend of registering positive values. In reality, the target of preserving an unchanged price level, i.e an inflation rate close to zero could correspond to a deflationary situation,” says the Bank of Albania in its 2012-2014 monetary policy document.
At an average of 1.8 percent for the first eight months of this year, the inflation rate continued remaining below the central bank’s lower limit of the target range of 2 to 4 percent, a situation reflecting sluggish internal demand which is the key driver of Albania’s growth.
Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 2.75 percentage points to a historic low of 2.5 percent since September 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in consumption or private investments.
The annual inflation rate in 2013 was estimated at around 1.9 percent, down from 2 percent in 2012, but far lower compared to 3.5 percent in 2011 and 3.6 percent in 2010.