Price Predictions: With present inflation at nearly triple expectation, economists challenge 2009 forecast

While authorities make plans based on predictions of a low inflation rate in 2009, economists in Armenia express concern over current inflation that nearly tripled last year’s prediction. Specialists in the science of economic impact say the neediest of society will feel inflation’s impact the most.

Minister of Finance Tigran Davtyan stated in late October that a 4 percent (±1.5) inflation is foreseen for the year 2009. Davtyan also stated during discussions of next year’s State Budget that the predicted level is “realistic”.

Meanwhile, current inflaction has reached 11.3 percent, nearly tripling the 4 percent prediction of last year. Experts expect the index to decrease by end of this year.

Ameriabank development director Tigran Jrbashyan expects to see 7-8 percent inflation by end of the year and says that while 4 percent inflation next year is unrealistic, “nothing disastrous will happen.”

Predictions by the International Monetary Fund are more pessimistic as IMF predicts 9.4 percent by end of the year.

During a government session last month Prime Minister Tigran Sargsyan said no growth in prices for goods is excepted for the last quarter of 2008, because the phenomenon has a seasonal nature:

“The major part of trade is done in this period (the 3rd quarter) and we have not been able to overcome the trend so far,” Sargsyan said.

Sargsyan had also added that despite the growth of inflation, it remains the lowest among the CIS countries. The IMF forecasts 22.4 percent inflation in Azerbaijan, and 10 percent in Georgia, in 2008.

Central Bank sees a decrease, conditioned by a drop in cost of bread products by 20 percent, contributing to a 3 percent decline in inflation.

The international prices for wheat on the Chicago Board of Trade in August made an average of $8.9 per bushel against the $14 in April decreasing for more than $5 or for almost 35 percent. Contrary to this, the prices for goods in Armenia dropped for only 0.7 percent in July-August.

A decrease in prices in Armenia was registered only in late October. Monitoring by the State Commission for Protection of Economic Competition of the Republic of Armenia showed the prices for some goods on the Armenian market dropped in the last week of October proportionate to the decrease on the international market, whereas those for some others did not. Petrol, for example, dropped 20 percent, proportional to international trends.

“New economic entities have entered the rice market, and, as a result, the price for rice in a number of commercial outlets, supermarkets, in 450 drams has dropped up to 80 drams, which is also conditioned with international prices. The prices for flour have also dropped for 10-15 percent. Now flour may be bought at the mill for 205-210 drams per kilo. A drop in about 20 percent is also registered on the construction materials market, as is the case on the international market,” the monitoring showed.

Still, some economists are worried over the high level of inflation. Economist Zoya Tadevosyan of the Heritage Party says it “will have the most negative influence on the economy”.

“If the inflation persists and the prices go up, which is very possible, the purchasing capacity of the population will drop, and the wide strata of the population, particularly those with low living standards, will suffer. The increase in prices will soon be felt the poor population will appear in a worse situation,” she mentions.

Some experts say Armenia is not subject to international trends due to so much monopolization of markets here.

Andranik Tevanyan, director of the “Politeconomia” (Political Economy) Research Institute says: “The domestic challenge is that the structure of our economy has a type of monopoly and oligopoly; and the system is anticompetive. The result is the prices with us do not drop even if they do on international market, or they do quite belated and not to the size of the international market.”