DRAM DEVALUATION FUELS ARMENIAN INFLATION IN MARCH
Venla Sipila
World Markets Research Center
Global Insight
April 2 2009
According to latest figures from the Armenian Statistical Service,
consumer prices in the country increased by 1.4% month-on-month (m/m)
in March, ARKA News reports. Thus, inflation returned to Armenia,
after prices had fallen by 1.8% m/m in February. Specifically, both
food prices and service tariffs increased by 1.0% m/m in March,
while the cost of non-food goods gained 3.7% m/m. In year-on-year
(y/y) terms, consumer prices in March increased by 1.0%, with food
prices falling by 2.7% y/y, whereas prices of non-food goods rose
by 0.5% y/y and service prices soared by 8.5% y/y. The cumulative
price growth over the first quarter of the year came in at 0.7%,
while annual inflation for the period amounted to 2.0%.
Significance:March data marks a halt to price developments of preceding
months, which had seen inflation moderate at an intensifying pace, due
to both demand pressure weakening as the economy cools, as well as due
to the sharp fall in world market commodity prices. The return of price
growth in March partly reflects an impact from the March devaluation
of the dram exchange rate. The Central Bank of Armenia (CBA) let
the dram weaken considerably in response to pressure from weakened
foreign currency inflows (seeArmenia: 4 March 2009 ). In addition, in
a half to the recent easing cycle, the CBA lifted its policy interest
rate by 100 basis points. With export earnings potential still weak,
the Armenian economy is heavily dependent on foreign investment and
remittances, and a halt to these now as the global economy is taking
a sharp downturn has a severe negative impact on growth prospects. In
addition, with the current-account deficit still wide, external risks
related to its financing are rising. Thus, further downward pressure
on the dram exchange rate may emerge, and this also further leads to
increasing inflation risks.
From: Emil Lazarian | Ararat NewsPress
