The ups and downs of inflation are not coordinated with economic performance

“The annual change of the consumer price index in March 2023 is 5.3%, a year ago this change was 5.7%”, quoted from the March bulletin on CPI [1] from INSTAT.

When we look at an indicator like inflation, which is the main threat to economic policies for development, but also a destroyer of the income of ordinary citizens, it is necessary to go beyond an optimistic monthly indicator to continue the analysis of its further progress.

The CPI is falling, and this fall cannot yet be predicted easily for the future, based also on the declaration of the end of March by the Governor of the Bank of Albania [2].

The annual CPI in 2022 is 6.7% and is expected to decline to lower levels, as low as 4-5% on an annual basis. Much of the improvement in March is because the inflation indicator for transport services is falling, albeit slowly, as well as a small decrease in inflation for all other groups with the largest impact, including an easier situation of the costs of energy resources, including fuels.

The primary impact on consumer prices did not come directly from the monetary policy of the increase in the base interest rate, but mostly as a reaction from the exchange rate for importers, which is estimated to directly affect the decision-making to go out with lower prices in market. But the impact on some basic foods that are produced by the agricultural and livestock sectors could not react in the same way for all products, damaging the demand arm in the market, which tends to shrink immediately when traders raise prices.

As we mentioned earlier at the beginning of 2023[3], the broad consensus among economic experts is summed up in the argument that this rate of inflation reduction in March 2023 is short-lived. The recent unrest caused by the debate and violence surrounding the local primaries, the further impact of recent interest rate hikes and the continued cost of living squeeze appear likely to require further sacrifices in demand for goods and services. at the lowest prices in the market.

Indicators of the development of sectors that can directly affect the reduction of inflation, such as: productive sectors, the impact of the exchange rate on the monetary market, as well as the involvement of the government to the necessary extent in the decision-making of businesses with policies that limit or impose costs new factors, including the lack of reduction in corruption and informality, are factors that keep the anti-inflationary measures of the Bank of Albania on hold, but also the recent hopeful actions of the government to increase a part of consumption with the expected increase in public sector salaries in two these two years.

Expectations are mixed, however, if economic growth will continue to depend to the extent that the Albanian economy performs mainly on the construction and real estate sectors, then the economic situation, although it may look good statistically, the indicators of the impoverishment of the strata most exposed to inflation will have similar problems as in 2022, but with further depletion of savings or available income.

A strange fact of the Albanian economy is that while international monitors predict an economic growth level of 2-3% according to the seasonal reviews they carry out, in Albania economic growth results even beyond the Government’s own forecasts in its main documents (Macroeconomic and Fiscal Framework 2023 -2025, PBA 2023-2025, Fiscal indicators 2023-2025).

If we can look at this growth with the situation affected by money laundering, corruption, and informality, we think that these three factors with weight in the economy do not allow accurate forecasts and even more so they may temporarily affect the recovery of consumption. but which are financial bubbles that harm the future of the economy and consumption.

From all the analysis of positively and negatively influencing factors, it is good news that inflation in Albania is responding to the tightening of credit and monetary costs, since last year. But it is not enough the moment when the Bank of Albania, even though it tries to impose on the market and the economy through its actions, it is not yet able to destroy the hearths of the informal money market. This market is always ready to lend to the formal and informal economy, exploiting the ground of the indolence of the controlling institutions and also helped by their grip on corruption and the lack of control of the institutions, hostage to a worn-out governing will.

What is happening with economic growth in 2023, at the time when the Bank of Albania exerts pressure to slow it down with the monetary policies of interest rate increases, can only happen with success when the policies are not coordinated with each other and on the other hand is money supply of the economy from the informal market.

[1] https://www.instat.gov.al/media/11445/ick_mars_2023.pdf
[2]https://www.bankofalbania.org/Shtypi/Konferenca_per_shtyp/Pyetje_pergjigjet_e_konferences_per_shtyp_23_mars_2023.html
[3] https://altax.al/en/the-economy-in-2023-looks-weird-enough/