FALLING FOOD PRICES SECURE CONTINUED DEFLATION IN ARMENIA IN AUGUST
Venla Sipila
World Markets Research Centre
Global Insight
September 1, 2009
With the Armenian economy in the throes of a very severe recession,
price pressures have dwindled rapidly, together with collapsing
demand. According to the latest consumer price inflation data from
the National Statistical Service of Armenia, quoted by ARKA News,
August saw prices fall by 0.4% month-on-month (m/m), after deflation
rates of 2.7% m/m and 0.3% m/m had been registered in July and June,
respectively. The continued monthly deflation was attributed to a
fall of 1.3% in the price of food (including alcoholic drinks and
tobacco). Conversely, prices of non-food goods and services increased
by respective rates of 0.3% m/m and 0.8% m/m. In year-on-year (y/y)
terms, consumer prices climbed by 3.5% in August, following a gain
of 3.1% y/y in July, and growth of 3.6% y/y in June.
Food prices fell by 0.9% in annual comparison, while non-food goods
prices rose by 4.6%, and service charges soared by 10.5% y/y. In
cumulative terms, consumer prices in Armenia have increased by 2%
over the January-August period, while the y/y gain for the first
eight months of the year registered 2.8%.
Significance:Although annual inflation accelerated in August, it still
remains below the upper band of the target rate of the Central Bank
of Armenia, which specifies planned annual end-year inflation at 4%
plus or minus 1.5 percentage points. After early 2009 saw inflation
pressures subside sharply, they started to strengthen again from March,
following the devaluation of the dram exchange rate seen earlier in
the month, while the April jump in inflation was mainly attributed
to the increase in import prices of Russian gas (seeArmenia: 1 May
2009:). Over recent months, inflation has greatly been suppressed by
seasonal easing of food prices, but the general notable weakness of
demand also continues to play a major role in this. The low inflation
pressures have given the Central Bank of Armenia more leeway in
monetary loosening, and it has sought to support the ailing economy
by repeated interest-rate cuts, the latest having taken place only
in August (seeArmenia; 12 August 2009:). The gas price increase is
likely to keep annual service-price inflation high in the coming
months, but the extreme weakness of demand will continue to have the
opposite effect. Then again, given Armenia’s high external financing
requirements and the still weak outlook for foreign-exchange revenue
inflows, the risk of potentially sharp inflation acceleration still
cannot be written off. Any rapid depreciation of the dram exchange
rate would be likely to be relatively rapidly transformed, further
to rising inflation pressures.
From: Emil Lazarian | Ararat NewsPress
