CBA’S forecast: inflation to make 5.4% in Armenia at end of 2008

YEREVAN, January 15. /ARKA/. Inflation is to make 5.4% in Armenia at the end of 2008 and 6.3% - in the 2nd quarter of 2008. These indicators are possible if the interest rates of the Central Bank of Armenia (CBA) are maintained, says the minutes of the meeting of CBA Board held to discuss the forecasts for the 1st quarter of 2008 and directions of the monetary and lending policies.

According to the document, by the end of the 2nd quarter of 2008 the basic scenario incorporates accumulated index of consumer prices – the 3.8pct contribution to the inflation due to the increase in prices for bakery goods, fats and vegetable oil and 1.2pct contribution to the inflation due to the expected completion of subsidizing the gas prices from the budget.

According to CBA Board, some internal and external developments may lead to rise in the forecasted inflation level. Particularly, higher than expected oil and foodstuff (including bakery goods) prices may be formed. Increase in oil prices is connected with both geopolitical factors and developments of world economy. Аmong the factors that influence the inflation may be the following: higher consumption share in the total demand and deeper positive balance in consumption.

Among the factors increasing the inflation level may be higher growth rates in economy crediting than forecasted, the Central Bank says.

Аccording to CBA Board members, some factors can make the inflation level decrease in Armenia. Among them is reduction of prices for imported goods due to Dram revaluation under the conditions of larger capital inflow than forecasted, and increase in exports growth in currency (as a result of rise in prices for basic metals).

The trends in agricultural development may have both upward and downward impact on the inflation levels.

CBA’s Board reports that inflationary pressures of the external environment were maintained by the end of the 4th quarter 2007 despite some stabilization of oil and foodstuffs prices. If no unexpected external shock occurs, the mentioned pressures will be milder later than in the previous period.

CBA’s Board confirmed that inflationary pressures of the external environment were weaker in the 4th quarter of 2007, whereas in the period under forecast the high rates of growth of private consumption together with “expanding” monetary and lending policy will somehow increase inflationary pressures. Under these conditions the CBA Board sees risks in maintaining the target levels of inflation in 2008.

According to the forecasts made in the 4th quarter of 2007, inflation will always exceed the upper limit of the target level in 2008 and will reach the planned level only by the end of the year, after a quarterly reduction.

In December 2007 inflation was 1.5% in December 2007 against November with 12-month inflation making 6.6% - 1pct more than the upper limit of the 4 1,5% target indicator. According to CBA’s forecasts made June and September 2007, the 12-month inflation level was expected to be within 5% .--0--