TIRANA, Jan. 10 – Albania’s inflation rate hit a five-year high of 2 percent in 2017, but continued remaining below the central bank’s 3 percent target estimated to have a positive impact on consumption and the economy as a whole.
The recovery comes after consumer prices hit a 16-year low of 1.3 percent in 2016 and reflects rising global oil and food prices, but also sluggish domestic consumption as the economy has been growing between 3 to 4 percent in the past couple of years, mainly thanks to some major energy-related investment.
Food and non-alcoholic beverages, the key item in the consumer basket, grew by an average of 3.9 percent in 2017, mainly as a result of a hike in key food products which Albania heavily imports.
Oil prices also rose by an average of 3.8 percent reflecting the hike in international oil prices and increased tax burden on local traders.
The poor consumption and sluggish demand was reflected by a slight decline in clothes, shoe and furniture prices.
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.
The low inflation pressures have also delayed the central bank’s scenario of the economy returning to equilibrium levels, meaning growth of more than 4 percent and an inflation target of 3 percent, by another six months to mid-2019.
The Bank of Albania has been keeping its key rate at a historic low of 1.25 since May 2016 when the country was facing disinflation pressure triggered by a sharp drop in international oil and food prices.
“Inflation is picking up in line with trading partners, although core inflation remains low, reflecting continued, albeit narrowing, domestic slack. With headline inflation below the 3 percent target, monetary policy remains accommodative, helping to push lending rates down and increase lek-denominated lending,” says the IMF in its latest country report.
Albania’s price levels for consumer goods and services were at 49 percent of the EU average in 2016, Europe’s second lowest, according to a report by Eurostat, the statistical office of the European Union.
Meanwhile, the country’s actual individual consumption (AIC), a measure of households’ material welfare slightly dropped to 37 percent of the EU average in 2016, down 1 percent compared to 2015.
When compared to disposable income, price levels, especially for food and non-alcoholic beverages at 72 percent of the EU average, are too high for the average Albanian. 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.
“Food and non-alcoholic beverages” takes the majority 44.3 percent of households budgets, a survey by Albania’s state statistical institute, INSTAT, has shown.
