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Armenian Economy Faces Seasonal Deflation


By Shakeh Avoyan

The Armenian economy has entered a period of seasonal deflation following a higher-than-expected inflation in the first half of the year.

According to the Armenian Central Bank (HKB), the country’s consumer price index slumped by five percent in the course of July. Agricultural products accounted for the lion’s share of the drop, which compensated for the 4.6 percent consumer price inflation in the first six months of 2002.

The government’s inflation target for the entire year is three percent.

The first-half inflationary pressures were triggered by an unprecedented rise in prices of basic agricultural products, with domestically grown fruits and vegetables costing at least twice as more as they did last year. The price hikes made the hitherto inexpensive produce beyond the purse of many Armenians. They were the result of last spring's unusually long period of rains which caused a significant damage to the Armenian agricultural sector.

But with agricultural supply picking up from mid-July, the prices began to fall back. They are still above the 2001 levels though.

Last month, the Central Bank cut its money supply, anxious to keep the inflation down. But its tightened monetary policy has led to a shortage of cash in the domestic market. Faced with the lack of Armenian drams in circulation, the finance ministry was forced to cancel a planned auction for short-term state treasury bills this week.

The liquidity crisis has also strengthened the national currency against the U.S. dollar which is now worth between 555 and 558 drams -- about 5 percent less than in May.
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