At 1.7 percent in January and at 1.9 percent in February, inflation rate remains below the central bank’s target even this year despite an increase fuel and tobacco prices fuelled by the higher taxes in force since January 2014
TIRANA, March 10 – Inflation rate continued remaining below the lower limit of the central bank’s target range of 2 to 4 percent for the seventh month in row, unveiling poor signals in a possible recovery of domestic consumption, the key driver of Albania’s growth, as the economy strives with the poorest growth rates in past five global crisis years.
Latest data published by the country’s state statistical institute (INSTAT) show the annual inflation rate in February 2014 was at 1.9 percent, remaining below the 2 percent rate since July 2013.
At 1.7 percent in January and at 1.9 percent in February, inflation rate remains below the central bank’s target even this year despite an increase fuel and tobacco prices fuelled by the higher taxes in force since January 2014.
The biggest increase was registered in “alcoholic beverages and tobacco” prices which rose by 6.3 percent year-on-year, followed by “goods and different services” with 5.6 percent, mainly as a result of a hike in compulsory auto insurance rates, and “food and non-alcoholic beverages” which rose by 2.9 percent.
The biggest price decreases were reported in “clothes and footwear” which dropped by 3.4 percent, followed by communication with 2.8 percent and health with 1.3 percent.
INSTAT reports “food and non-alcoholic beverages” had the major contribution to the February inflation rate with a 1.14 percentage points, followed by “alcoholic beverages and tobacco” with 0.33 percent. While alcoholic beverage prices dropped by 0.6 percent in February 2014, tobacco prices rose by 11.6 percent year-on-year mainly due to the entry into force of higher excise taxes, increasing the rate on a 20 cigarette pack by 20 lek to 90 lek.
“Rent, water, fuel and energy prices” contributed by 0.33 percent in the February inflation rate.
INSTAT reports both diesel and petrol prices rose by 0.5 percent compared to January 2013. Since January 2014, both diesel and petrol are being taxed by an extra 10 lek (12 lek VAT included) which has taken fuel prices to a record 190 lek/litre (Euro 1.33) ranking Albania with the highest fuel prices in the region.
The annual inflation rate in 2013 was estimated at around 2 percent, the same as in 2012, but far lower compared to 3.5 percent in 2011 and 3.6 percent in 2010.
At only 1 percent in November 2013, Albania’s inflation rate hit a record low for the previous past 20 months, unveiling the critical situation of the country’s economy which is facing its lowest growth rates in the past 15 year affected by sluggish domestic consumption and private investments.
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 2.5 percentage points to a historic low of 2.75 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 investments.
