ARMENIAN INFLATION REMAINS RAPID IN JANUARY
by Venla Sipila

Global Insight
February 6, 2008

According to the latest data from the Armenian National Statistical
Service, consumer prices in the country increased by 6.6% year-on-year
(y/y) in January, ARKA News reports. Thus, the annual inflation rate
remained level with the December result, when it modestly eased after
reaching 6.8% y/y in November. Inflation was driven by a surge of 10.3%
y/y in food prices, while prices of non-food goods rose by 4.0% y/y and
service prices increased by 3.0% y/y. Inflation measured month-on-month
(m/m) accelerated to 2.4% in December, after registering 1.5% m/m
in December and 2.1% m/m in November. Also monthly developments were
characterised by rapidly rising food prices; indeed, the cost of food
surged by 4.4% m/m in January, while prices of non-food goods grew
by 0.5% m/m and service charges edged up by 0.2% m/m.

Significance:Seasonal effects typically drive inflation up in January;
indeed, the m/m gain of 2.4% seen in consumer prices in January
matches the m/m inflation rate in January last year. In particular,
vegetable and fruit prices tend to increase in winter months. However,
food prices have in recent months put strong upward pressure on
prices also in annual comparison, notably due to higher world market
prices for grains. Also high commodity prices are contributing to
inflation. However, as Armenian growth is finally expected to cool
somewhat after a prolonged very strong period, price pressure from the
demand side should somewhat ease this year, although still remaining a
clear factor in boosting inflation. As the inflation targeting policy
of the Central Bank of Armenia has implied strong dram appreciation
at times of robust foreign remittance inflows, moderating demand and
the consequent easing of price pressure will also be reflected in
somewhat curbed currency strengthening pressure.