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Prices in the country will be high not only this year, but will continue to be the highest in two decades, at least until 2027.
The forecast is made by the International Monetary Fund, in the latest global economic outlook report, recently published.
The IMF estimates that the average inflation in Albania in 2022 will be 5.5%, from 2% which was the average of last year. Prices are expected to be high in 2023, with the inflation rate estimated at 3.7%. By 2027, inflation is expected to remain at around 3%, at the Bank of Albania target.
These are the highest levels since 2004, when the IMF reported the data. For the period 2004-2013, the average inflation has fluctuated at 2.7%, while from 2014 to 2021 it has fluctuated between 1.3-2%.
In its report, “War Stops Economic Recovery,” the IMF estimates that Russia’s war with Ukraine will severely hamper global recovery, slowing growth and raising inflation further.
The report notes that the economic effects of the war are spreading widely, such as seismic waves emanating from the epicenter of an earthquake, mainly through commodity markets, trade and financial ties. Because Russia is a major supplier of oil, gas and metals, and, along with Ukraine, wheat and corn, the current and expected drop in supply of these goods has already significantly increased their prices.
Even before the war, inflation had risen in many economies due to rising commodity prices and the supply-demand imbalance caused by the pandemic. Several emerging markets and central banks of developed economies, such as the US Federal Reserve and those in Latin America, were already under pre-war pressure, accelerating the tightening of their monetary policy.
The shortage of war-related supplies will greatly exacerbate these pressures, particularly through rising prices for energy, metals and food.
Although barriers are expected to be eased eventually as output will be boosted elsewhere in response to higher prices, while adding capacity, supply shortages in some sectors are expected to last until 2023. As a result, the IMF predicts inflation remain high for much longer, in both advanced and emerging markets and emerging economies.
The IMF predicts that rising food and fuel prices will hurt lower-income households globally, including in South America and Asia. “In emerging markets and economies, rising food and fuel prices could significantly increase the risk of social unrest,” the report said.
In the last report, the IMF has halved the forecast for the country’s economic growth in 2022. The IMF predicts that the Albanian economy will grow this year by only 2%, from 4.5% that was the forecast in October. The lowering of the IMF forecast is related to the war and its impact on the country’s key partners (such as Italy) as well as the energy situation.
Inflation in the country jumped to 5.7% in March
In March, domestic inflation reached 5.7%, the highest in two decades (Monitor note). INSTAT reported that inflation, or the Consumer Price Index, which measures the change in the price of a particular basket of goods, reached 5.7% in March. This is the highest level since 2002 and is much higher than the Bank of Albania’s 3% target.
The latter, whose main responsibility is to maintain price stability, in an effort to curb inflation, a few days ago decided to raise the key rate for the first time in a decade, bringing it to 1%, from the minimum level historical 0.5% that was so far.
The significant increase in prices is expected to significantly worsen the financial situation of Albanian households. Most of them stated as never before that they expect a deterioration of the financial situation of their families over the next 12 months./Monitor
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