Inflation rate hits ten-month low of 1.4%

Inflation rate during the first ten months of this year has been at an average of 1.72 percent, almost half of the 3 percent mid-term target set by the Bank of Albania.
TIRANA, Nov. 10 – Albania’s inflation rate hit a record low for this year in October 2014 when it dropped to 1.4 percent, 0.6 percent below the central bank’s lower limit target range, hinting sluggish demand and consumption.
Data published by the country’s state statistical institute, INSTAT, shows inflation rate during the first ten months of this year has been at an average of 1.72 percent, almost half of the 3 percent mid-term target set by the Bank of Albania on lower food and non-alcoholic beverage prices, the most important item in the consumer basket.
In its monetary policy report for the third quarter of this year, Albania’s central bank says that from a macroeconomic point of view, the low levels of inflation rate continue reflecting mostly the presence of non-utilized production capacities, which dictate slow growth in labour and production costs. “In addition, the low inflation rate has also been influenced by declining inflation in partner countries, expectations for low inflation rates as well as low liquidity pressure on the economy.”
The central bank expects inflation rate to range between 1.1 to 3.7 percent in the next four quarters.
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.
“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.
Data published by the country’s Institute of Statistics this week show inflation rate decelerated to 1.4 percent in Oct. 2014, down from 1.5 percent last Sept. and 2 percent last August, fuelled by a 1.6 percent rise in food and non-alcoholic beverages, the most important item in the consumer basket. The biggest annual price increases in Oct. 2014 were reported in the education service due to hikes in tariffs on public universities followed by 7.4 percent increase in “alcoholic beverages and tobacco” within which tobacco prices rose by 12.4 percent ahead of a new rise in the excise tax on tobacco.
Clothing and footwear products were down by 3.4 percent year-on-year in October, while medical care was down by 1.5 percent mainly due to the lift of the 10 percent VAT on medicines and health services since April 2014.
The low levels of inflation rate have been accompanies by slower growth in the past couple of years. The slight shrink in the second quarter of the year means the Albanian economy has grown by only 0.56 percent in the first half of 2014, which is the worst performance in the past six crisis years, and that the road to recovery for the Albanian economy will be long and require key reforms.
Earlier this year, INSTAT revised the GDP for 2013 upward to 1.42 percent, up from an earlier 0.44, giving a wrong impression of 2013 as the worst year in Albania’s economy. Revised data shows the Albanian economy grew by 3.7 percent in 2009, 3.75 percent in 2010, 2.17 percent in 2011 and only 1 percent in 2012.
The Albanian economy grew by an average of 2.6 percent annually during the 2009-2013 crisis years compared to a pre-crisis decade of an average 6 percent, being one of the best performers in the region, according to INSTAT.
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.