World Markets Research Centre
Global Insight
Dec 3 2009

Armenian Inflation Accelerates in November

BYLINE: Venla Sipila

According to latest consumer price data from the Armenian National
Statistical Service, annual inflation in November came in at 4.6%,
accelerating from the October rate of 3.5%, and also clearly exceeding
the September measure of 3.7%. Very diverse developments within food
categories continued. Indeed, food prices continued falling in annual
comparison, even if the decrease moderated to 0.5% after food price
deflation of 2.6% year-on-year (y/y) was witnessed in October. Growth
of non-food good prices accelerated to 10.9% y/y, while the increase
in service tariffs eased, however remaining in double digits too, with
a gain of 10.4% y/y. Meanwhile, month-on-month (m/m) comparison shows
in inflation accelerating to 1.2%, following the October result of
0.5% m/m. This acceleration was clearly driven by strengthening food
price pressures. The latest developments took the cumulative consumer
price growth since the beginning of the year to 4.5%, while the annual
inflation rate for the January-November period was reported at 3.1%.

Significance:Demand-side inflation pressures remain very weak, amid
the drastic economic contraction Armenia is dealing with. However,
notable cost side push is evident via the rapidly rising annual
service price inflation, due to the increase in Russian gas prices
implemented earlier in the year. In any case, annual inflation this
year should quite comfortably remain within the central bank’s target
range of 4% with limits of 1.5 percentage points on either side. Om
the other hand, given Armenia’s worryingly wide external financing
requirement, exchange rate risks also serve as a factor in lending
major uncertainty to the inflation outlook.