Albania central bank says low inflation due to external factors

Albania central bank says low inflation due to external factors - 2016-10-03

Low Albania inflation from drop in fuel, food prices

* Central bank plays down talk of deflation

* Bank ready to intervene if inflation drop continues (Adds context)

By Benet Koleka

TIRANA, March 10 Falling fuel and food prices caused Albania's February inflation to drop to one of its lowest annual rates, the central bank said on Thursday, adding it expects the impact to wear off over time.

Albania's annual consumer price inflation rate fell to 0.2 percent in February 2016, which was the lowest ever annual inflation rate, according to the Institute of Statistics.

The central bank was more circumspect, calling it "one of the lowest inflation rates in the last years".

The low figure caused surprise but the central bank dismissed talk of deflation, adding "they (the figures) did not even signal the danger of such a (deflationary) situation in the future".

"Our preliminary conclusions suggest the inflation drop comes from supply shocks, which mostly originate from developments in the international markets," the Central Bank told Reuters in written answers.

The drop in fuel prices abroad and at home had caused inflation to drop between 0.5 and 1 percentage point and low food prices in four of Albania's trade partners also influenced the inflation drop during January and February, it added.

The bank did not see the inflation drop being caused by unexpected falls in demand and consumption in this period.

"However, it is clear that the rate of economic growth and aggregate demand remain below their potential and keep inflation from returning to its target," the central bank said.

Albania's gross domestic product is seen having grown between 2.5 and 3 percent in 2015, and expanding by 3.4 percent in 2016.

With 2016 inflation around 2 percent, the bank expects it to reach the target of 3 percent in the middle of 2018, pledging more stimulus after cutting the rate to the record low of 1.75 percent from 6.5 percent in 2008 to spur lending and growth.

The bank said its initial reaction was that the inflation drop would not cause it to change its forecast of a trend of increasing inflation in the medium term.

"Should there be deviations from our earlier forecasts, monetary policy would come into action," the bank said.

A veteran central and commercial banker told Reuters: "What is worrying is not whether it is the lowest rate on record or not, but the fact that it was the opposite of what everyone expected."

Source: Reuters

http://www.reuters.com/article/albania-economy-inflation-idUSL5N16G2RT