BoA: Wage growth is supporting purchasing power, but creates risks for higher inflation

2025-11-13 14:27:00, Ekonomi CNA

BoA: Wage growth is supporting purchasing power, but creates risks for higher

Low unemployment and continued wage growth remain a source of risk for future price increases. In the monetary policy report for the fourth quarter of the year, the Bank of Albania highlights the positive performance of labor market indicators.

Second quarter data show a 3.4% increase in non-agricultural private sector employment, a decrease in the unemployment rate to 8.5%, and a 9.5% increase in private sector wages. According to the Bank of Albania, these developments have supported households' purchasing power, but they have also increased production costs, continuing to be a source of risk for increasing inflationary pressures in the future.

Inflation increased slightly in the third quarter, reaching an average level of 2.4%, from 2.3% and 2% in the previous two quarters. According to the Bank of Albania's analysis, this increase mainly reflected the increase in rental prices and the more moderate decline in oil prices, while food prices decreased.

In particular, the Bank of Albania emphasizes that domestic inflationary pressures have strengthened, reflecting the expansion of economic activity, tight labor market conditions, and rising rental prices. The latter were the main factor that brought the growth to 2.9% of

core inflation in the third quarter. In contrast, external inflationary pressures remain weak, driven by low commodity prices in international markets and the appreciation of the Lek exchange rate.

The Albanian economy grew by an average of 3.6% during the first half of this year. The Bank of Albania estimates that the increase in consumption and investment was supported by the good financial situation of the private sector, the growth of credit and the high levels of consumer and business confidence. At the same time, tourism has continued to grow, albeit at a moderate pace, driven by the increase in foreign demand. This profile of economic growth has been reflected in the expansion of activity in the services and construction sectors, while the agricultural and industrial sectors have continued to show a decrease in the volume of activity.

In the Bank of Albania's assessment, the Albanian economy is expected to grow close to potential in the medium term, while inflation is expected to increase towards the 3% target within the first half of 2026. The return of inflation to target will be supported by the increase in core inflation.

imported and by the persistence of domestic inflationary pressures.

According to the Bank of Albania, economic growth will be supported by private sector demand for consumption and investment, as well as foreign demand, especially in the tourism sector.

The direct contribution of this sector is expected to gradually moderate in the medium term, but strengthening the connection with other sectors of the economy would help expand its impact on domestic economic activity.

On the other hand, private sector demand will be supported by the stable financial situation of households and businesses, the positive climate of confidence and favorable financing conditions. However, the pace of economic growth is expected to be somewhat slower compared to the past three years, in the context of the expected slowdown in economic activity in the Eurozone and the Albanian economy approaching its production capacities./ Monitor