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PRODUCER PRICE INFLATION MODERATES IN ARMENIA DURING 2007
by Venla Sipila
Global Insight
February 12, 2008
Industrial producer prices increase by an average of 0.6% over
2007, according to the Statistical Committee of the Commonwealth of
Independent States (CIS). This is a very low rate in peer comparison,
and follows average industrial producer price inflation rates of 0.9%
and 7.7% seen in 2006 and 2005, respectively.
Significance:The now reported further easing of already moderate
producer price inflation in 2007 was combined with accelerating
consumer price inflation. Indeed, consumer prices increased by 6.6%
year-on-year (y/y) in December 2007, while the average inflation
rate accelerated from 2.9% in 2006 to 4.4% last year (see Armenia: 2
January 2008: ). The persistently very strong domestic demand pushed
up consumer prices, necessitating the Central Bank of Armenia (CBA)
to allow the dram exchange rate to appreciate strongly over the year,
as it had little other means to sterilise the effect of strong foreign
currency inflows in the form of workers' remittances and FDI.
Indeed, the dram/US$ rate ended 2007 at 304.22, having strengthened
by some 17% over the year. This, further, acted to moderate producer
price pressure, as the strength of the dram counteracted the high
price of energy imports, moderating the upward impact of commodity
prices on domestic producer price inflation. As domestic demand is
finally expected to cool somewhat, at the same time as international
energy prices remain at high levels, demand pressure on consumer price
inflation should somewhat ease, leading further to weaker upward
pressure on the dram. Thus, producer price inflation is likely to
somewhat pick up this year.
by Venla Sipila
Global Insight
February 12, 2008
Industrial producer prices increase by an average of 0.6% over
2007, according to the Statistical Committee of the Commonwealth of
Independent States (CIS). This is a very low rate in peer comparison,
and follows average industrial producer price inflation rates of 0.9%
and 7.7% seen in 2006 and 2005, respectively.
Significance:The now reported further easing of already moderate
producer price inflation in 2007 was combined with accelerating
consumer price inflation. Indeed, consumer prices increased by 6.6%
year-on-year (y/y) in December 2007, while the average inflation
rate accelerated from 2.9% in 2006 to 4.4% last year (see Armenia: 2
January 2008: ). The persistently very strong domestic demand pushed
up consumer prices, necessitating the Central Bank of Armenia (CBA)
to allow the dram exchange rate to appreciate strongly over the year,
as it had little other means to sterilise the effect of strong foreign
currency inflows in the form of workers' remittances and FDI.
Indeed, the dram/US$ rate ended 2007 at 304.22, having strengthened
by some 17% over the year. This, further, acted to moderate producer
price pressure, as the strength of the dram counteracted the high
price of energy imports, moderating the upward impact of commodity
prices on domestic producer price inflation. As domestic demand is
finally expected to cool somewhat, at the same time as international
energy prices remain at high levels, demand pressure on consumer price
inflation should somewhat ease, leading further to weaker upward
pressure on the dram. Thus, producer price inflation is likely to
somewhat pick up this year.