Inflation rate remains below BoA lower limit of 2%

TIRANA, Aug. 12 – Albania’s inflation rate slightly accelerated to 1.8 percent in July 2014, but yet remained below the central bank’s lower limit of the target range of 2 to 4 percent for the fourth month in a row, unveiling that both consumption and private investments remain below potential.
Data published by the country’s Institute of Statistics INSTAT this week show inflation rate rose to 1.8 percent in July 2014, up from 1.5 percent last June and 1.6 percent in July 2013, fuelled by a 2.6 percent rise in food and non-alcoholic beverages, the most important item in the consumer basket. The biggest annual price increases in July 2014 were reported in “different goods and services” with 8.5 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 2.5 percent year-on-year while “food and non-alcoholic beverage” prices, the most important item in the consumer basket accelerated to 2.6 percent compared to July 2013. Health, “clothes and footwear” and communication prices, were down by 6.1 percent, 2.2 percent and 0.7 percent respectively, INSTAT reported. The moderate drop in health prices is a result of the lift of 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 1.03 percentage points, followed by different goods and services with 0.41 percentage points and alcoholic beverages and tobacco with 0.25 percent.
At an average of 1.77 percent for the first seven 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
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.
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.