Central Bank of Armenia forecasts disinflation to 4.4% in 2023

ArmInfo. The average y-o-y official inflation rate in Armenia will decrease to 4.4% in 2023 from the actual 8.6% in 2022 (January-December to the same period in 2021), with further downward movement to 3.8% in 2024 and stabilization at target 4% in 2025. Inflation will begin to fall to the target level from the second half of 2023. Such a forecast is presented in the Monetary Policy Program (MPP) of the Central Bank of Armenia for Q1 2023, published on March 28, where GDP growth expectations are set to slow to 5.8% in 2023 (from an actual 12.6% in 2022), followed by a slowdown to 5.2% in 2024 and 4.9% in 2025.  Moreover, the Central Bank, pointing to a decrease in inflation in the near future in its scenario, nevertheless warns that some goods and services, which are characterized by rigid prices, will continue to rise in price under the influence of high demand and inflationary expectations.

In terms of the FAO index, the CBA forecast report indicates a decrease to 133.4 points, after an increase jump from 98.1% to 143.6% in 2020-2022. In the next two years, this index will rise again to 141.5% in 2024 and to 144.8% in 2025.

Meanwhile, days earlier,  head of the Central Bank, Martin Galstyan, stated that the FAO index had stabilized in recent months and there were no new upward trends, while noting that this index was at a higher level than in 2020, i.e. almost 50 points higher.  Specifically, for a number of commodity groups, he noted that there was a decrease in the FAO index in the first 2 months of this year.

For example, for vegetable oil/fats, after an increase to 240 points in 2022, a decline to 130 points followed in February 2023, and for wheat, after an increase to 180 points in 2022, a decline to 150 points followed in February 2023, which in both cases is above the base 100 points. A decrease in the FAO index was also observed for dairy and meat products, and for meat products almost to the base 100 points, and for dairy products - to almost 120 points.

"Current trends suggest that in the future, due to the tightening of monetary policy by the central banks of developed countries, the US economy and the GDP of other developed countries will decline.  Therefore, there is a risk of a recession. In this case, I do not exclude that prices for a number of food products (wheat, oil / fats, sugar, dairy and meat products) will decrease. The Central Bank's expectations are connected precisely with the fact that as a result of such a decline, external pressure on the Armenian economy will be weak," the head of the Central Bank explained.

In the same forecast report, the Central Bank of the Republic of Armenia provides inflation expectations for 2023-2025 in the USA, the Eurozone and Russia, as well as international prices for oil and copper.

Thus, the average y-o-y inflation in the United States will decrease to 5.8% in 2023 (from 8% in 2022), then to 4% in 2024 and to 2.7% in 2025. In the Eurozone, inflation will decrease from 8.4% to 7.4% in 2023, then to 4.5% in 2024 and to 2.5% in 2025. In Russia, inflation will decrease from 13.7% to 9.2% in 2023, then to 5.7% in 2024 and to 4.3% in 2025. The price of oil, after rising to $98.7 per barrel in 2022, will drop to $88 in 2023, but in 2024-2025 it will rise again to $94.5-96.7. The price of copper, after declining to $8956 per ton in 2022, will rise to $9094.7 in 2023, and then continue to grow to $9353.9- 9578.9 in 2024-2025.

It should be noted that according to statistical data, for 2022 (December to December 2021), official inflation in the consumer market of Armenia amounted to 8.3% (against inflationary 7.7% in 2021). The core y-o-y inflation calculated by the Central Bank in the same period amounted to 9.5% (versus inflationary 7.3% in 2021).  Moreover, such an increase in official inflation in 2022 came from a rise in the price of food products by 9.9%, non-food - by 7.2% and an increase in tariffs for services by 7.1%. At the same time, the average y-o-y inflation reached 8.6% (January-December 2022 versus January-December 2021) due to a rise in prices for food products by 12.5%, non-food products - by 7% and an increase in tariffs for services by 5.2%.

According to the statistical data for 2023, in February, the y-o-y official inflation was formed at the level of 8.1%, and the core one - at the level of 8.4%, against the y-o-y inflation rates of 6.5% (official) and 6.4% (core) in February2022, respectively. At the same time, price increases continue to be fixed due to food products, the prices of which increased by 9.7% (against 11% growth a year earlier), as well as due to the increase in tariffs for services by 7.4% (against 2.1% - growth a year earlier), with a rise in the price of non- food products by 5.4% (the same growth was a year earlier).