Tweet
Global Insight
February 22, 2013
Armenian inflation slips back to 2.6% in January
BYLINE: Lilit Gevorgyan
Consumer price inflation rate fell back to 2.6% in January from 3.2%
in December 2012, according to the latest inflation release from
Armenian National Statistics Service. Having dipped to the near five
year low of 0.1% in April 2006 inflation climbed steadily to 2012 peak
of 3.6% in November 2012 on the back of a sharper rise in consumer
goods and food prices. However, inflation has fallen back since
November with the latest breakdown of the overall consumer price index
revealing a continued deceleration in the year-on-year (y/y) change
food prices from 3.8% in November to 1.6% by January is a key factor
in the inflation rate falling back. With regards to high street prices
the consumer good price inflation declined by 1 percentage point to
2.7% in January, the lowest rate since August 2012. On the flipside,
the y/y change in the average price of services and alcoholic
beverages rose marginally 2.2% and 4.7% respectively.
Significance:Although lower than expected in January, we still expect
the inflation to trend up during the course of 2013, and is projected
to average 4.4% in the year as a whole. One factor could be a stronger
inflationary push from food prices which recorded lower than normal
rises during in 2012 as a result of the country enjoying exceptionally
good harvests. Also, domestic energy prices are likely to increase in
2013 despite the authorities suggesting to households that they will
remain stable throughout 2013 in order to calm voters before the just
concluded general election. However, based on the experience of
previous election cycles in Armenia, energy and food prices are likely
to increase in the wake of the vote. In addition, higher inflationary
pressures are also likely to result from stronger growth in domestic
spending which is set to expand by 3.5% in 2013 compared up to a 2.4%
gain in 2012. This could allow retailers, service providers and firms
to pursue a more aggressive pricing policy, elevating consumer goods
inflation. Furthermore, the labour market is relatively healthy with
the unemployment rate projected to remain at 6.4% which suggests
limited surplus employment to meet the anticipated sharper rise in
output. This is suggests that wage growth could pick up with firms
more confident about being able to pass on the higher labour costs to
the consumer. Despite increasing price pressures, we remain confident
that the inflation rate will remain within target range of 4%+/- 1.5
percentage points by the Central Bank of Armenia (CBA) in 2013, but
could spill over in 2014 as economic growth gathers further momentum.
Thus, we believe that there will be little reason for the CBA to
revise its policy interest rate soon, but they could come under
increasing pressure to tighten towards the end of 2013 as becomes
apparent that the inflation rate is set to breach the target range in
2014. The refinancing rate ended 2012 at 8%, having remained unchanged
throughout the year.
February 22, 2013
Armenian inflation slips back to 2.6% in January
BYLINE: Lilit Gevorgyan
Consumer price inflation rate fell back to 2.6% in January from 3.2%
in December 2012, according to the latest inflation release from
Armenian National Statistics Service. Having dipped to the near five
year low of 0.1% in April 2006 inflation climbed steadily to 2012 peak
of 3.6% in November 2012 on the back of a sharper rise in consumer
goods and food prices. However, inflation has fallen back since
November with the latest breakdown of the overall consumer price index
revealing a continued deceleration in the year-on-year (y/y) change
food prices from 3.8% in November to 1.6% by January is a key factor
in the inflation rate falling back. With regards to high street prices
the consumer good price inflation declined by 1 percentage point to
2.7% in January, the lowest rate since August 2012. On the flipside,
the y/y change in the average price of services and alcoholic
beverages rose marginally 2.2% and 4.7% respectively.
Significance:Although lower than expected in January, we still expect
the inflation to trend up during the course of 2013, and is projected
to average 4.4% in the year as a whole. One factor could be a stronger
inflationary push from food prices which recorded lower than normal
rises during in 2012 as a result of the country enjoying exceptionally
good harvests. Also, domestic energy prices are likely to increase in
2013 despite the authorities suggesting to households that they will
remain stable throughout 2013 in order to calm voters before the just
concluded general election. However, based on the experience of
previous election cycles in Armenia, energy and food prices are likely
to increase in the wake of the vote. In addition, higher inflationary
pressures are also likely to result from stronger growth in domestic
spending which is set to expand by 3.5% in 2013 compared up to a 2.4%
gain in 2012. This could allow retailers, service providers and firms
to pursue a more aggressive pricing policy, elevating consumer goods
inflation. Furthermore, the labour market is relatively healthy with
the unemployment rate projected to remain at 6.4% which suggests
limited surplus employment to meet the anticipated sharper rise in
output. This is suggests that wage growth could pick up with firms
more confident about being able to pass on the higher labour costs to
the consumer. Despite increasing price pressures, we remain confident
that the inflation rate will remain within target range of 4%+/- 1.5
percentage points by the Central Bank of Armenia (CBA) in 2013, but
could spill over in 2014 as economic growth gathers further momentum.
Thus, we believe that there will be little reason for the CBA to
revise its policy interest rate soon, but they could come under
increasing pressure to tighten towards the end of 2013 as becomes
apparent that the inflation rate is set to breach the target range in
2014. The refinancing rate ended 2012 at 8%, having remained unchanged
throughout the year.