TIRANA, Feb. 14 – Albania’s inflation rate significantly dropped last January, hinting sluggish domestic consumption and that the 2.7 percent target the Albanian government has set for 2018 will be difficult to achieve.
Data published by the country’s state statistical institute, INSTAT, shows inflation rate dropped to 1.7 percent last January, 1.3 percent below the central bank’s 3 percent target estimated to have a positive impact on the country’s economic growth and domestic consumption.
Back in January 2017, consumer prices hit a five-year high of 2.8 percent fuelled by a hike in fuel and liquid gas prices and one of the coldest months in three decades paralyzing the country and causing huge damage to greenhouse crops.
The significant slowdown in January 2018 is mainly a result of lower imported inflation with food and non-alcoholic beverage prices increasing by only 2.2 percent, compared to 5.8 percent a year ago.
“Food and non-alcoholic beverages” takes the majority 44.3 percent of households budgets, significantly more than in regional EU aspirant countries, a survey by Albania’s state statistical institute, INSTAT, has shown. The situation is a result of the high level of imports and VAT being applied at an undifferentiated 20 percent rate even on basic food products.
The FAO food price index, a measure of the monthly change in international prices of five commodity groups, was down by an annual 3 percent last January, affecting Albania as a net importer.
Albania’s central bank has postponed its expectations for the 3 percent inflation target for the first half of 2019 due to poor capacity utilization rates ranging between 60 to 70 percent in main industries and low levels of imported inflation.
The central bank also says it will continue maintaining an easy monetary policy during the whole of 2018 and keep the key interest rate unchanged at a historic low of 1.25 percent, a policy it has been following since mid-2016 in a bid to boost sluggish credit and consumption.
Albania’s inflation rate hit a five-year high of 2 percent in 2017 following a 16-year low of 1.3 percent in 2016.
The Albanian economy is estimated to have grown by an average of 3.9 percent in the first three quarters of 2017, but household consumption was twice lower, reflecting growth mainly driven by some major energy-related investment such as the Trans Adriatic Pipeline and several big hydropower plants with not much direct impact on bringing welfare to the average Albanian.
Albania has one of Europe’s lowest price levels for consumer goods and services at only half of the European Union average, but the country’s actual individual consumption (AIC), a measure of households’ material welfare, is about 60 percent below EU average, according to Eurostat, the statistical office of the European Union.
