The Central Bank of Azerbaijan (CBA) does not expect a surge in inflation by the end of the year and predicts that it will be within target values, i.e. at 4 percent. At the same time, the lower bracket may be around 2 percent, and a maximum of 6 percent, Trend reports referring to the CBA.
The CBA bases its expectations on the current dynamics of consumer prices and the continuing balance in the foreign exchange market.
Changes in inflation occur in the expected trajectory, according to the bank. In April 2019, the inflation target for 12 months made up 3.1 percent. There was a slight increase in prices for food and services, and inflation thereof made up 3.5 and 3.8 percent, respectively. Non-food prices rose 1.4 percent. In May, under the influence of seasonal factors, there was a decrease in prices for food products that have a significant share in the consumer basket.
Monitoring of the real sector revealed that price expectations fell in the sectors of trade, services and construction during May, and remained unchanged in the non-oil manufacturing industry. The bank also expects that seasonal factors will have a downward effect on inflation in the agricultural sector in the next few months.
In the short term, the CBA considers the inflation risks to be balanced. This is due to the favorable international market conditions, a positive balance of payments, a balanced foreign exchange market, anti-inflationary monetary conditions and seasonal factors.
However, risk assessment is complicated, according to the CBA experts. The main uncertainty is linked to the deterioration of the prospects for global economic growth, a new wave of trade wars and the dynamics of oil prices against the backdrop of geopolitical tensions. The continuing decline in oil prices since May could have a negative impact on economic expectations.
Another external risk factor is the continuing rise in global food prices and the potential import of inflation. At the same time, the risks of instability in the financial markets of the trading partner countries are relatively low, which is explained by lower expectations of further tightening of monetary policy in developed countries, the bank said in a statement.
As for the internal risk factors, they will depend on the fiscal stimulus of a social nature and the decisions of the financial sector in the consumer market, as well as the scale of influence on the monetary sector.
Recent processes have shown that these effects stretch over time. The real impact of these factors on inflation will become clear by the end of the year, the CBA believes.
Overall, the implementation of fiscal policy in a difficult external environment and strict coordination of monetary policy with fiscal remain the main conditions for macroeconomic stability in the country.
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