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Fitch Solutions: Over the past decade, inflation in Azerbaijan expected to average 5.0%

04 December 2024 13:51 (UTC +04:00)

Over the past decade, inflation in Azerbaijan averaged 5.5% and we expect inflation to average 5.0% over our 10-year forecast period through to 2033, says the country report of "Fitch Solutions" (FS) company belonging to "Fitch Group", APA-Economics reports.

It was noted that consumer price inflation is at historic highs due to food price rises and the Russia-Ukraine war that has caused considerable supply chain disruptions for Azerbaijan: "We expect prices to retreat gradually over the coming years. We do not expect this to cause any major stress on the local currency which has been supported by strong oil and gas-related inflows. We expect inflation to revert back to trend over the long term given our view that the exchange rate will remain mostly stable in this period

FS stated that the Central Bank of the Republic of Azerbaijan (CBA)'s inflation target band is currently 2.0-6.0% and the CBA primarily ensures price stability through exchange rate control: "Price pressures have been considerably elevated for most of 2022 and early 2023 and we expect inflation to remain above target until early 2024 despite manat stability given ongoing food supply issues emerging from the Russia-Ukraine war. Nevertheless, we believe that the CBA has a better control over the inflation situation now than it did when the country had to materially devalue its currency in 2015 (following the collapse of global oil prices) which in turn put significant stress on the CBA's balance sheet. However, it is worth noting that still-high levels of dollarisation of the economy (48.4% of bank deposits are in foreign currency denomination) means that monetary policy transmission is less effective and as such inflation could remain sticky."

It is worth noting that the CBA has set out a four-year plan to fully transition to an inflation-targeting monetary policy system by 2026, this could also imply that by then the CBA will allow the manat to trade more freely in the currency market.