Core inflation rose for the second consecutive month in August

2024-09-12 07:32:11, Ekonomi CNA

Core inflation rose slightly again in August. According to the Bank of Albania, core inflation reached 2.37%, from 2.29% in July.

However, on an annual basis, core inflation remains in significant decline. In the same period of last year, the core inflation marked the level of 4.17%.

Core inflation rose for the second month in a row, possibly signaling expected upward pressures on the prices of services in the economy, particularly tourism-related services. The tourism sector this year also faced high labor costs, which partially continued to exert upward pressure on prices.

Core inflation is calculated by the Bank of Albania for a group of goods and services that account for 69% of the overall basket of the Consumer Price Index. Core inflation excludes those products that usually have high volatility, mainly food and energy products. The purpose of calculating core inflation is to strip the overall increase in prices from fluctuations of a shorter-term nature. In particular, core inflation tends to estimate internal inflationary pressures on inflation, which in recent years have influenced a lot of the increase in the labor cost of businesses.

Although at the moment in small proportions, during the last two months the basic inflation has moved in the opposite direction in relation to the total inflation, which for the month of August went down to the level of 2% and touched a new minimum level for the last three years. Inflation has decreased mainly thanks to curbing the increase in food prices, the drop in fuel prices and the strong lek in the foreign exchange rate.

Core inflation rose for the second consecutive month in August

Source: Bank of Albania

Meanwhile, the most stable element of inflation in recent months has shown a slight increase, which may be an indicator that the internal inflationary pressures in the economy have not stopped completely.

The central banks, including the Bank of Albania, are faced with the dilemma of whether they should continue with the reduction of interest rates further this year.

The US Federal Reserve is expected to cut the key rate for the first time this month, after a two-year tightening cycle. The latest data on economic growth and employment in the Eurozone seem to have also increased the likelihood of a second easing intervention this year by the European Central Bank.

In the case of Albania, the inflation level seems to create room for a further decrease, but the increase in its basic component and the increased concerns regarding the rapid expansion of lending to the economy are factors that may dictate a more cautious approach and keeping the basic interest rate at the current level of 3%. The next meeting of the Supervisory Council of the Bank of Albania for monetary policy decision-making will take place on October 2./ Monitor.al