Core inflation fell for the tenth month in a row in December, down to 3.2%

2024-01-17 14:25:00, Ekonomi CNA

Core inflation fell for the tenth month in a row in December, down to 3.2%

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Core inflation closed down last year. According to data from the Bank of Albania, for the month of December the annual base inflation decreased to 3.2%, from 3.39% that had been for November and 8.42% that had been at the end of 2022.

Core inflation fell for the tenth month in a row and hit the lowest level since February 2022.

Core inflation is an indicator calculated by the Bank of Albania over 69.2% of the general basket of the Consumer Price Index. This indicator measures the change in consumer prices, excluding those products that by their nature have high volatility, mainly food and energy products.

The purpose of core inflation is to strip overall price growth of the effects of supply shocks or other factors with short-term impact.

The steady decline in core inflation during 2023 can be interpreted as an encouraging signal for the steady decrease in average inflation close to the 3% objective of the Bank of Albania.

But, while core inflation has continued to decline, inflation calculated for the entire basket of consumer goods in the third quarter of last year appeared more resistant and closed 2023 at the level of 4%. This shows that the most volatile components of inflation, such as food and fuel, have continued to exert inflationary pressures.

The Bank of Albania expects inflation to return to the 3% target in the second half of 2024, but other analysts are less optimistic. The latest projections of the International Monetary Fund and Raiffeisen Research place the return of inflation to the target only in 2025, stressing that this will require a further increase in interest rates from the Bank of Albania.

The decline of the most stable component of inflation may be an indicator that supports the slightly more optimistic line of the Bank of Albania's forecast, but however the prospect of a further increase in interest rates still remains the most likely scenario in the case of the Lek. The Bank of Albania is maintaining a level of the base rate among the lowest in Europe, at the level of 3.25%, while the neutral interest rate is estimated at the level of 4.5%.

Such a level can be explained by several factors, such as the subsidization of electricity prices, the strengthening of the Lek in the exchange rate, as well as the relatively restrictive fiscal policy followed by the Albanian government. These factors have absorbed a good part of the strong inflationary pressures of the last two years. However, the fact remains that in recent months the fall in inflation has stalled near the 4% limit, a rate significantly higher than the Eurozone average./ Monitor