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ROA Inflation Moderates in December to Bring End-2007 Rate to 6.6%

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  • ROA Inflation Moderates in December to Bring End-2007 Rate to 6.6%

    Global Insight
    January 2, 2008



    Armenian Inflation Moderates Somewhat in December to Bring End-2007
    Rate to 6.6%

    by Venla Sipila



    According to the latest data from the Armenian National Statistical
    Service, consumer prices in the country increased by 6.6%
    year-on-year (y/y) in December, ARKA News reports. Thus, inflation
    eased modestly compared with the November result of 6.8% y/y, while
    remaining above the October rate of 5.7% y/y. Specifically, food
    prices surged by 10.9% y/y in December, while prices of non-food
    goods increased by a relatively modest rate of 2.5% y/y and service
    prices rose by 3.2% y/y. Measured month-on-month (m/m), consumer
    prices grew by 1.5% in December, after rising by 2.1% m/m in
    November. The cost of food increased by 2.8% from November, while
    prices of non-food products gained 0.8% m/m and service charges eased
    by a marginal rate of 0.1% m/m. The last monthly data for the year
    brought the annual average inflation rate to 4.4%. Prices of food
    products increased by an average rate of 6.7% over 2007. Meanwhile,
    the cost of non-food goods retreated by 0.5% and service prices
    gained 4.2% on the average over the year.

    Further, it was reported that the average monthly consumer price
    inflation during 2007 amounted to 0.5%, 0.1 percentage points more
    than over 2006.

    Significance:The CBA's inflation-targeting policy has proved
    relatively successful, even if implying the strong appreciation of
    the dram exchange rate, in conditions of strong foreign remittance
    and FDI inflows. The annual average inflation rate for 2007 came in
    slightly below our latest forecast. Nevertheless, as we expected, the
    end-year rate exceeded the inflation rate of 4% specified as the
    target in the year's budget. Consumer prices in Armenia were in 2007
    under upward pressure due to both external and domestic reasons.
    While demand is strong in the rapidly expanding economy, inflation is
    also pushed upwards from the cost side due to high prices of
    commodities and food. Economic growth in Armenia over 2007 has proven
    still stronger than originally expected, while also high food prices,
    due to weak grain harvests in particular, have led to several upward
    revisions in our Armenian inflation projections over last year. Some
    moderation in Armenian inflation is likely over the new year, as
    growth should finally moderate from the double-digit rates. However,
    domestic demand is likely to still remain robust, while commodity
    prices are also expected to remain at very high levels for some time
    to come. Thus, upward appreciation pressure on the dram is likely to
    persist as well.
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