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"The blow will be temporary" - Bank of Albania "bets" against inflation

2026-08-13 15:12:15Biznes SHKRUAR NGA REDAKSIA VOX

"The blow will be temporary" - Bank of Albania "bets"

The Bank of Albania confirms its belief that the inflationary wave will be temporary. In the Monetary Policy Report for the third quarter of the year, it is stated that inflation increased during the second quarter, mainly as a result of the increase in oil prices in world markets and the increase in prices in some categories of services in the country.

Consumer price inflation increased to an average of 3% in the second quarter, from 2.5% in the first quarter, reflecting strengthening foreign and domestic inflationary pressures. In terms of basket components, its increase was mainly driven by higher fuel prices, as a result of the increase in global oil prices following the escalation of the conflict in the Middle East, as well as by higher services inflation.

In macroeconomic terms, the increase in prices in foreign markets was also transmitted to the Albanian economy, although, according to the Bank of Albania, the appreciation of the Lek continued to amortize their transmission to domestic prices.

On the other hand, domestic pressures were driven by the increase in prices of some services related to transport and tourism and by the still high contribution of rents. However, excluding rent inflation, the Central Bank estimates that domestic inflation remains in line with the price stability objective.

The Bank of Albania still assesses that future inflation expectations remain stable, reducing the transmission of the supply shock to further second-round effects.

After a temporary increase in the short term, inflation is expected to gradually decline towards the 3% target, supported by economic growth close to potential and anchored inflation expectations.

However, the report once again emphasizes that uncertainties about the future remain relatively high. These uncertainties are dictated by developments in international energy markets, geopolitical tensions and their impacts on inflation and economic activity in the country's trading partners.

According to the report, the balance of risks remains tilted to the upside for inflation and to the downside for economic activity. A further escalation of geopolitical tensions, particularly if accompanied by energy supply disruptions or further increases in commodity prices, could put additional pressures on inflation and weaken the economic outlook.

The Bank of Albania estimates that economic activity continued to expand at a steady pace during the first half of 2026. Economic growth resulted in 3.7% in the first quarter, while available indicators, according to the Central Bank, suggest a continuation of the upward trend in the second quarter.

This performance reflected increased consumption, investment, and exports of services, which were supported by increased income, expectations for the future, increased tourism revenues, and favorable financing conditions.

In particular, employment and wages in the non-farm private sector increased in the first quarter, while the unemployment rate remained low at 8.4%. The 11.5% increase in private sector wages reflected robust labor demand, labor market shortages, and the 25% increase in the minimum wage in January.

So far, according to the Bank of Albania, the inflationary impact of rising labor costs has been mitigated by improving productivity and narrowing business profit margins. At the same time, financing conditions continued to support the expansion of economic activity.

According to the Bank of Albania, the medium-term outlook for the economy remains positive. Economic activity is expected to grow close to potential, while inflation is expected to fluctuate close to the 3% target in the medium term. The gradual attenuation of external shocks, together with economic growth close to potential and anchored inflation expectations, are expected to support the gradual return of inflation close to the Bank of Albania's target.

The economy is expected to continue growing at a steady pace, supported mainly by domestic demand, favorable labor market conditions, expanding credit, and consumer and business expectations. (Monitor)


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