COVID-19 increased inflation / Reaches 2.1%, but only food prices rose

The coronavirus crisis has had an immediate effect on rising consumer prices. According to Instat data, inflation rose to 2.1% in March from 1.2% in February. This is the first time since August 2018 that inflation stands below the target range of the Bank of Albania.

The rise in inflation has all come from rising food prices. Inflation for this group reached 4.6%, from 1.9% in February. The outbreak of the epidemic and quarantine sparked a jump in demand for consumer goods during March.

On the other hand, the numerous restrictive measures imposed by the government may have affected the supply of these goods; but, to a large extent, price increases may have been speculative. During March, fines were even imposed by the tax authorities on some wholesalers of fruits and vegetables. It is precisely these products that have given the main impact on increasing food inflation. Prices of the subgroup “fruit” increased by 24.3%, followed by the subgroup “greens including potatoes” by 8.2%.

Among other groups, there has been no significant price increase, except for a slight rise in rental prices. Meanwhile, the transport group has suffered a significant decline in inflation. As noted by consumers, fuel prices fell last month due to falling oil prices in world markets.

Inflation rise during March is likely to be transient and dictated by COVID-related measures 19. With food prices stabilizing, perhaps this increase will fade over the coming months.

The epidemic is expected to have a significant impact on the economy, which will negatively affect domestic demand and put pressure on rising prices to remain weak. Based on these expectations, the Bank of Albania decided at the end of March to reduce the key interest rate to the new historical low of 0.5%.

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