Armenian may see 4-5% inflation this year

Jean-Michel Happi, head of the World Bank Yerevan Office, said today full-year inflation in 2011 may reach 4-5%. Speaking at a news conference he blamed high inflation in 2010 on external factors, primarily higher food prices resulting from a sharp fall in domestic agriculture production and the increased cost of wheat and other cereals on international markets, but added that the WB expects food prices to drop this year.

Armenia ended 2010 with a nearly double-digit inflation of 9.7 percent. Earlier Armenian Central Bank governor, Arthur Javadian, blamed 6-7 percentage points of the total inflation rate on circumstances beyond the Central Bank’s control, like a decline in agricultural produce and a rise in world food prices.

According to Jean-Michel Happi, the price hikes in Armenia reflect the openness of its economy, but they are affected also by some other structural factors, including relatively high freight rates and high prices for grain and raw materials.

“Increasing the country’s competitiveness and productivity is becoming a real challenge,’ he said.

Mr. Happi also noted that, according to a report of the UN Food and Agriculture Organization (FAO), Armenia is among the ten countries which in the period from July to October 2010 saw a sharp rise in food prices. Moreover, he noted that the critical impact of climatic conditions, including the recent flooding in Australia, as well as current projections of some decline in grain production in the coming months may increase the pressure on prices.

According to the state budget, inflation in Armenia in 2011 is scheduled at 4% (± 1,5 %). -0-