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Ulviyya Shahin

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Azerbaijan's annual inflation currently sits at the lower end of the target range, Azernews reports citing the Central Bank of Azerbaijan (CBA).

In May of this year, the 12-month inflation rate stood at 0.3%, consistent with the CBA's forecasts from April. Over the same period, core inflation was 0.4%. Food prices experienced deflation of 1.4%, while non-food and service sector inflation rates were recorded at 1% and 2.2%, respectively.

Household surveys indicate expected inflation for the next 12 months is nearing the lower boundary of the target range.

Externally, the inflationary backdrop remains largely neutral. The World Bank notes a 5.6% annual increase in commodity prices in May, with non-energy prices rising by 5.1%. Conversely, the UN Food and Agriculture Organization (FAO) reports a 3.4% decrease in the food price index. The nominal effective exchange rate of the manat, rising by 19.3% in 2023 and 3.2% in the first five months of 2024, has contributed to reducing import inflation.

"Over the past two months, there have been no significant shifts in the risk balance for inflation. Fluctuations in inflation among partner countries and commodity prices on the global market continue to pose the primary external risks for inflation. Persistent tight monetary policies in major economies are expected to curb global inflation. Domestically, increased local spending and potential overgrowth in aggregate demand pose internal inflation risks. Therefore, the impact of expanding budget expenditures and credit activities on inflation must be carefully monitored.

Overall, the risks of inflationary pressures appear balanced. Assuming current conditions persist, annual inflation for 2024-2025 is anticipated to remain within the target range of 4±2%. Updated forecasts on key macroeconomic indicators will be announced by the CBA at the end of July 2024.

Future decisions on monetary policy will hinge on actual inflation rates, forecasts, and the dynamics of external and internal risk factors. The statement suggests that maintaining the parameters of the interest rate corridor unchanged at the upcoming meeting is likely.

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