TIRANA, Jan. 14 – With inflation rate hitting a three-year low of 0.7 percent in December 2014, the Konfindustria business association has called on both government and central bank to apply economic and monetary policies in order to prevent the deflationary effects the economy is facing.
The association says the declining inflation which last December stood 1.3 percent below the central bank lower limit target, hinting sluggish purchasing power, is having a negative impact on the manufacturing and services sector.
“The consequences are tangible in the decrease of the production capacities, the increase in the cost per unit, the reduction in companies’ profit rate and inability to plan investments. All these affect the competitiveness of domestic companies, the attractiveness of new investments and bring unemployment and bankruptcy,” says Konfindustria’s administrator Gjergj Buxhuku.
Inflation rate hit a three-year low of 0.7 percent in December 2014, hinting sluggish demand and consumption and deflation risks considering the central bank’s inflation target of 3 percent. The last time inflation was at a lower rate was in February 2012 when it hit a record low of 0.6 percent.
“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.
Since September 2011, the country’s central bank has cut the key interest rate in twelve consecutive moves by 0.25 percent each time to a historic low of 2.25 percent, but the moves have mostly been reflected on lower interest rates for lek-denominated deposits and T-bill yields, which have almost halved during the past year, while interest rates on lek-denominated loans have registered only a slight decline.
Annual inflation rate in 2014 is estimated to have dropped to 1.6 percent, down from 1.9 percent in 2013 and 2 percent in 2012, but far lower compared to 3.5 percent in 2011 and 3.6 percent in 2010.
