EASING FOOD PRICES TO ALLOW FOR MODERATING INFLATION IN ARMENIA, TRUSTS THE NATIONAL BANK
by Venla Sipila

World Markets Research Center
Global Insight
June 16, 2008

Falling world market food prices create conditions decrease inflation
pressure in Armenia, the Central Bank of Armenia (CBA) believes,
according to ARKA News quoting the CBA’s monetary policy protocol
for June. The CBA states that the moderating food price pressure was
due to expectations of new yield-boosting supply, expecting Armenian
food prices to fall over the second half of this year. On the other
hand, the Bank notes that global oil prices keep up strong pressure
on Armenian prices. The strength of these have secondary effects
beyond energy prices, also pushing up for example the price of
transportation services.

Significance:The latest Armenian inflation data showed annual consumer
price inflation only just remaining below double-digits (see Armenia:
2 June 2008: ). The Central Bank has repeatedly increased interest
rates in order to suppress inflationary pressures, and the country’s
Prime Minister Tigran Sarkisian has stressed that restraining
the rapid pace of price growth was the most important task for
the country at the moment, even if this called for administrative
measures (see Armenia: 30 May 2008: ). The expected moderation in
food prices is welcome news for Armenia where food costs still form
a large part of the consumption basket. However, we do not expect
to see any sharp deceleration in Armenian inflation in the coming
months. This is because upward pressure from energy prices is likely
to persist. In addition, Sarkisian has noted that Armenian inflation
lacked downward flexibility, whereas no such phenomenon was observed
regarding upward shifts.

From: Emil Lazarian | Ararat NewsPress