ARMENIAN INFLATION EASES SOMEWHAT IN OCTOBER
Venla Sipila
World Markets Rsearch Centre
Global Insight
November 3, 2009
According to the latest consumer price figures from the Armenian
National Statistical Service, prices in October increased by 3.5% in
annual terms, the year-on-year (y/y) inflation rate thus returning to
its August rate after measuring 3.7% y/y in September. Specifically,
food prices fell by 2.6% y/y, while the cost of non-food foods
increased by 7.4% and service tariffs soared by 11.9% y/y. Meanwhile,
after a gain of 0.7% in September had seen the month-on-month (m/m)
inflation rate return to a positive range following deflation in the
three preceding months, the m/m inflation rate moderated to 0.5% in
October. Food prices gained 0.6% m/m, while the cost of both non-food
items and services increased by 0.5% m/m. These developments took
the cumulative price growth since the beginning of the year to 3.2%,
while the annual inflation rate for the January-October period came
in at 3.0%.
Significance:Armenian inflation pressures from the demand side
remain extremely weak due to the severe economic contraction. However,
cost-side pressures do play a role, with annual service price inflation
boosted by the increase of Russian gas prices enacted earlier this
year. Upward pressure from this source is likely to persist in the
coming months. Nevertheless, the inflation rate should remain within
the target range of 4% plus or minus 1.5 percentage points specified
by the Central Bank of Armenia (CBA). Then again, given the very wide
external financing needs of the economy in comparison to its foreign
currency earnings, the potential for sharp further depreciation of the
dram exchange rate remains a risk. This has direct relevance for the
inflation outlook because any notable dram weakening would probably
transfer relatively rapidly to intensifying price pressures.