At an average of 1.76 percent for the first half 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, July 8 – Inflation rate hit a new record low in June 2014 despite moderate recovery in the country’s economy in the first half of this year, unveiling that both consumption and private investments remain below potential.
Data published by the country’s Institute of Statistics INSTAT this week show that at 1.5 percent in June 2014, annual inflation rate hit a record low since November 2013 when it dropped to only 1 percent, raising deflation concerns considering the central bank’s mid-term target of 3 percent.
The biggest annual price increases in June 2014 were reported in “different goods and services” with 8.2 percent, mainly as a result of sharp rise in compulsory auto insurance, followed by “alcoholic beverages and tobacco” with 6.9 percent due to a 12 percent increase in tobacco prices fuelled by higher excise taxes.
Prices of “hotels, coffee bars and restaurants” rose by 2.4 percent year-on-year while “food and non-alcoholic beverage” prices, the most important item in the consumer basket were up by 2.1 percent compared to June 2013.
Health, “clothes and footwear” and communication prices, were down by 6.3 percent, 2 percent and 1.3 percent respectively, INSTAT reported.
Food and non-alcoholic beverages had the biggest impact in the annual price increase with 0.84 percentage points, followed by different goods and services with 0.4 percentage points and alcoholic beverages and tobacco with 0.25 percent.
Compared to May 2014, the inflation rate was down by 0.7 percent influenced by positive contribution by domestic agricultural contribution.
At an average of 1.76 percent for the first half 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. In the first half of 2013, inflation rate was at an average of 2.4 percent.
Albania’s central bank estimates that by preserving the inflation rate 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.
“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.
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.
