ARMENIAN INFLATION ACCELERATES IN SEPTEMBER
by Venla Sipila
Global Insight
October 3, 2007
Positive monthly inflation returned to Armenia in September.
According to latest data from the Armenian National Statistical
Service, consumer prices increased by 0.7% month-on-month (m/m),
after decreasing by 1.5% m/m in August, ARKA News reports.
Specifically, both the cost of food and services rose by 0.9% from
August, while prices of non-food goods retreated by 0.4% m/m.
Seasonal falls in fruit and vegetable prices continued to curb food
price inflation, but this was counteracted by increased cost of other
foodstuffs, for example bread.
Year-on-year (y/y) inflation accelerated to 2.7% after registering
1.6% in August. Thus, September broke the easing pattern of annual
inflation seen in recent months; prices had increased by 2.2% y/y
in July after surging by 4.8% in June. With growth of 3.8% y/y, food
prices took the leading role in annual inflation developments, while
non-food good prices fell by 2.7% y/y and service tariffs increased
by 3.3% y/y. Over the January-September period, Armenian consumer
prices have increased by 3.8% y/y, driven mostly by a 4.8% y/y rise
in food prices. On average, prices have fallen by a marginal 0.05%
over the first nine months of the year, while over the same period
last year, they increased by an average of 0.3% m/m.
Significance:This year’s state budget targets end-2007 inflation at 4%,
with a band of 1.5 percentage point on either side. In its September
meeting, the Board of Directors of the Central Bank of Armenia (CBA)
expressed their trust that this target can be met, despite recognising
external inflation pressures. Indeed, due to the strong bearing of
food costs on the Armenian inflation, for example world market prices
for grains are reflected in inflation rates. In addition, the high
cost of energy provides cost inflation pressure.
Moreover, prices are also pushed upwards from the demand side, and
also the CBA expects near-term inflation pressure due to strength of
domestic consumption and investment spending, as well as high budget
expenditures. We believe that the central bank’s 2007 inflation
target at present indeed looks realistic. The CBA is implementing
inflation targeting policy, which has proved successful, even if
implying strong appreciation of the dram exchange rate, in conditions
of strong foreign remittance and FDI inflows.