Armenia’s Inflation Continues to Spiral Beyond Maximum Government Forecasts

YEREVAN (RFE/RL)–Consumer prices in Armenia again rose last month, keeping inflation well above the maximum target rate of 5.5 percent that was projected by the Armenian government and Central Bank for this year.

According to the Central Bank, the consumer price index increased by 1 percent between September and October and pushed up annual inflation to 9.1 percent. The latter figure was up from 8.6 registered in January-September but still below August peak level of 9.6 percent.

Finance Minister Tigran Davtian said in early October that inflation will continue to fall and could even approach the government target by the end of the year. The Central Bank made a similar forecast shortly afterwards.

In a statement issued late on Tuesday, the bank warned that the latest data means “inflationary risks” for the Armenian economy will remain high in the months to come. It indicated that they are unlikely to decrease significantly before the second half of 2011.

The statement blamed the higher-than-anticipated inflation on this year’s spike in food prices resulting from a sharp fall in domestic agricultural production and the increased cost of wheat and other cereals in the international markets.

According to the National Statistical Service, Armenia’s net agricultural output tumbled by as much as 18 percent in January-September because of highly unfavorable spring weather conditions. That in turn explains why renewed economic growth in the country slowed considerably in the third quarter of 2010.

The slump was compounded by a severe drought in Russia, Armenia’s leading wheat supplier. Wheat prices in the country jumped by over 20 percent this summer.

Vartan Bostanjian, a parliament deputy from the Prosperous Armenia Party represented in the government, on Wednesday blamed the Central Bank for the increased inflation, saying that it was not caused by objective factors. He claimed that the bank has abandoned its legal obligation to ensure price stability in the country.

Bostanjian, who is an economist by training, did not elaborate on the claims. He complained instead that Armenia’s inflation-related legislation is “terribly soft and murky.” “In effect, nobody bears any responsibility in case of big or small mistakes,” he told a news conference.

The Central Bank refused to comment on Bostanjian’s remarks.

Meeting on Tuesday, the bank’s governing board again decided to keep its benchmark refinancing rate unchanged, at 7.25 percent. But the board did not rule out the possibility of its “adjustment” in the coming weeks.

The bank has raised the minimum cost of borrowing by a total of 225 basis points since May in an effort to contain mounting inflationary pressures. The impact of such measures is limited by a small size of the local debt market as well as a high degree of dollarization of the Armenian economy.


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