External Deflation Tendencies Cheapening Imported Sugar, as well as Animal and Vegetable Fats

Slow growth of world economy and increase in supply have resulted in continuing deflation tendencies, which, in turn, have caused cheapening of sugar, as well as animal and vegetable fats imported into Armenia. The continuing positive dynamics of agricultural development has resulted in cheaper prices for vegetables and potatoes. Therefore, in May cheapening of food products totaled 1.2% amid 0.1% price increase for non-food and service tariffs. This evidences that the impact of the last year's AMD devaluation is declining.      

Deflation in the consumer market of Armenia for May 2015 totaled 0.5% against April 2015; while y-o-y (May 2015 against May 2014) totaled 5.1%. As Central Bank of Armenian has forecast for Q2, this has reached the maximum threshold of fluctuation.

Judging from the aforementioned, CB forecasts that the inflation is within the projected range. This means that during 2015 inflation is to fluctuate by the maximum threshold gradually converging the 4% envisaged objective ceiling ( 1.5%).   

By the data of the National Statistical Service of Armenia, inflation in the consumer market of Armenia totaled 1.4% in Jan-May 2015 (5% y-o-y). In Jan-May AMD devaluated against USD by 3.6% - 1.3% in May alone (16.2% y-o-y with exchange upturn from 413,32 to 480,2 AMD/$1).

To note, by Central Bank's updated forecast for QII, in 2015 the economic growth in Armenia will speed up to 1.3-2.6%. This will be maintained in 2016, too - 1.4-2.8%. In 2017 it will speed up to 3.4-5%. This is related to the envisaged governmental implementation of a number of project in the export-oriented sector, as well as to the stagewise improvement of the economic environment. There have been changes in the 2015 export-import forecast. Export of commodities and services is expected up by 7-9%, while the import - down by 4-6%. By the CB's updated outlook, private transfers will decrease by 25% in 2015 (USD) against the previous 30% outlook.

To recall, the exchange rate has been rising over the last months of 2014, exceeding 570 drams per 1 US dollar. From Oct through Dec 17 AMD dropped against USD by 45%, Dec 18-20 it grew by 25%. On Dec 22 it started dropping again. On Dec 27, at 4:00 pm, the rate was 470 AMD against 1 USD, 574 AMD against 1 EUR, 8.7 AMD against RUR. On Dec 20 the rates were 455 AMD, 555 AMD and 7.8 AMD, respectively, versus 570 AMD, 712 AMD and 8.6 AMD, respectively, on Dec 17.  At NASDAQ OMX Armenia, the exchange rate grew from 407.14 to 560 AMD/1 USD (on Dec 17, the very day when the exchange rate grew 22%), and again went down to 470 drams per 1 USD on Dec 27. As for Feb 20 2015, the exchange rates on the retail market totaled 479 drams/1 USD in average, 544AMD/1EUR and 7.8AMD/1 RUR.