According to the baseline scenario, annual inflation is projected to remain within the target range in the current and next year, APA-Economics reports, citing the Central Bank of Azerbaijan.
It was noted that according to the CBA’s May forecasts under the baseline scenario, annual inflation is expected to be 5.9% in 2026 and 4.5% in 2027.
The upward revision of the inflation forecast is mainly driven by the activation of external cost factors. These factors include the acceleration in the growth rate of global food prices, the activation of inflationary pressures in trading partner countries, and the slowdown in the strengthening pace of the nominal effective exchange rate. The weakening of demand factors compared to the February forecast partially neutralized the inflationary impact of supply factors. Overall, according to the May forecast, a significant portion of inflation is expected to be shaped by supply factors.
It was emphasized that since the previous meeting, growing geopolitical tensions have increased the role of external factors in the balance of inflation risks. The conflict in the Middle East has caused disruptions in supply chains, leading to higher transportation and insurance costs, while also intensifying upward price volatility in global energy markets. The continuation of these processes during the remaining period of the year will be the main factor determining inflation dynamics in trading partner countries. For information, note that global inflation forecasts for the current year by international financial institutions have also been revised upward. In the coming periods, the scale of imported inflation will depend not only on inflation in trading partner countries but also on the dynamics of the nominal effective exchange rate. Inflation expectations increasing consumption more than anticipated is also among the main domestic risk factors.
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