BAKU, Azerbaijan, June 20. Russian Gazprombank predicts inflation slowdown in Azerbaijan to a level close to the target corridor of the Central Bank of Azerbaijan (CBA), making up four percent +/-2 pp, from July through August this year, Deputy Head of Research, Chief CIS economist at Gazprombank Gulnara Khaidarshina told Trend.
According to her, at present, inflation in Azerbaijan exceeds the upper limit of the target corridor of the CBA by 550 basis points, and the refinancing rate exceeds it by 250 basis points.
“In May, inflation decreased to 11.5 percent year on year, down 1.3 percentage points from April. This inflation slowdown was recorded in all segments, including food, non-food products and services. Food inflation fell to 12.7 percent year on year, down 2.47 percentage points compared to April," she said. "A slowdown in price growth was recorded for meat, buckwheat, eggs, bread, sunflower and corn oil, as well as fruits and vegetables. However, prices for sugar and soft drinks continued to accelerate."
Khaidarshina noted that in the non-food segment, inflation continued to slow down in May and amounted to 10.7 percent on annual basis (a decrease of 0.6 percentage points per month) due to the slowdown in prices for lumber, paper and laptops.
"However, prices for shoes, refrigerators, air conditioners and bicycles continue to increase, perhaps due to increased demand for these items in the summer. Growth in prices for services slowed down by 0.2 percentage points, to 10.5 percent year on year. Some mitigation of this downtrend was due to a steady increase in prices for rental housing, household appliances, apartment renovations, as well as catering and cosmetics services," the expert said.
She also reminded that during the May meeting, the CBA noted several factors affecting inflation, including an expansion in aggregate demand as a result of fiscal stimulus, foreign exchange inflows into the domestic market, and high lending activity.
"The data of the Central Bank of Azerbaijan show that the supply of currency at currency auctions held twice a week exceeded demand by 97 percent from January through April. The fourth package of social reforms also contributed to growth in the non-oil sector. Given the stimulating fiscal policy, the money supply in manat terms has increased 1.8 times since the start of the COVID-19 pandemic and is more than 20 percent of GDP. On annual basis, the money supply grew by 24.7 percent," Khaidarshina added.
Gazprombank's chief economist also noted that the budget deficit for the current year is planned at 2.5 percent of GDP, given the latest revisions of revenues and expenditures, compared with one percent of GDP last year.
"This may lead to further expansion of the money supply and encourage the Central Bank of Azerbaijan to intensify operations to manage excess liquidity," she said.
According to the forecast of the World Bank, the average annual inflation in Azerbaijan is expected to be 8.5 percent in 2023 and 6.2 percent in 2024.
In 2022, the inflation rate in Azerbaijan made up 13.9 percent.
