Inflation in Armenia continued to fall in the first quarter of this year, allowing the authorities in Yerevan to further ease their monetary policies that were tightened after last summer’s surge in key consumer prices.
The National Statistical Service (NSS) recorded an annual inflation rate of 3.8 percent last month, down from 5.6 percent in December. NSS data shows that an 8.6 percent year-on-year rise in utility fees and the cost of other services was the main factor behind the March 2014 figure.
It reflects double-digit increases in electricity and natural gas tariffs for Armenian households, which went into effect in July 2013 following the official announcement of Russia’s decision to raise the price of its gas delivered to Armenia. This, coupled with the increased cost of domestic agricultural produce resulting from bad weather, caused inflation to spike up to 9.2 percent in August, well above the authorities’ target band of 2.5–5.5 percent.
The Central Bank of Armenia (CBA) responded by raising its benchmark refinancing rate by 0.5 percent to 8.5 percent. Inflationary pressures on the Armenian economy eased in the following months, leading the CBA to cut the rate to 8 percent. With inflation continuing to fall, according to government statistics, the minimum cost of borrowing was lowered further afterwards. It currently stands at 7.5 percent, the lowest level in three years.
The World Bank praised the CBA’s monetary policy in a report on Armenia’s macroeconomic performance released earlier this month. “In the absence of major price shocks, inflation will return to the target by mid-2014 when the effects of the utility tariff adjustment will have been absorbed,” said the report.