The increase in labor costs is keeping domestic inflationary pressures high

2024-05-20 11:32:00, Ekonomi CNA

The increase in labor costs is keeping domestic inflationary pressures high

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The increase in labor costs for businesses is keeping internal inflationary pressures high in the Albanian economy. According to information from the Bank of Albania, unit labor costs increased by 5.4% in the fourth quarter of 2023.

The growth of this indicator remains at high levels, but it is still in a slowing trend compared to the previous quarters.

According to the Bank of Albania, the slower growth of labor costs per unit is dictated both by the slowdown in the growth rate of the real wage, and by the gradual transition of productivity growth, from negative values ??to positive values ??during the last quarter of 2024.

However, it should be said that in average values ??for the entire year 2023, unit labor costs have expanded by 9.7%, significantly higher compared to the previous year when the increase was 2.3%.

Meanwhile, other manufacturing costs have continued the slowing trend during the fourth quarter of 2023. Producer prices increased by 3.1% from 5.2% in the third quarter of 2023.

Producer prices for the domestic market slowed more sharply than those for export, rising 4.2% from 7.2% a quarter earlier.

Since last year, the Bank of Albania has made it clear that the pressures coming from the domestic economy are gaining more and more weight in the structure of inflation.

After the meeting of the Supervisory Council, this month, the Governor, Gent Sejko, said that internal inflationary pressures, although decreasing, remain relatively high.

"These pressures are fueled by solid demand for goods and services, demand which is reflected in the rapid growth of employment, wages and production costs of the private sector," said Sejko.

The data of the Bank of Albania show that the high contribution of internal inflation to the structure of total inflation continued in the first quarter of this year.

The latest monetary policy report underlines that core and domestic inflation consolidated the convergence between them, marking the respective values ??of 2.8 and 2.9% in this quarter.

Although they decreased by about 0.6 percentage points compared to the previous quarter, they maintained higher rates than total inflation. Core net inflation also slowed, but more moderately, to 3.2 from 3.3% a quarter ago. Core net inflation continued to remain slightly above target and above the average of the last three years, reflecting the stability of inflation in services and other durable goods.

Core inflation is measured over about 69% of the CPI basket, while net core inflation excluding processed food subgroups (including bread and cereals) is measured over about 46% of it.

On the one hand, the short-term and foreign-origin components of inflation recorded a rapid decline. Non-core inflation and imported inflation marked 2.5% and 2.3%, respectively, these rates were halved compared to those of a quarter ago.

These declines mainly reflected the apparent slowdown in unprocessed food inflation, as a result of the drop in food prices in foreign markets as well as the appreciation of the exchange rate.

The formation of total inflation (2.7% for the first quarter of 2024) maintained the same profile as before, with a predominance of domestic contributions, with 2.3 percentage points.

According to the Bank of Albania, the intensity of internal inflationary pressures remained relatively high, precisely reflecting the relatively high demand for goods and services and the increase in unit labor costs. /Monitor