Cost of living rises steeply in Armenia

Since April 2020, the cost of living in Armenia has risen dramatically, with prices for food staples up 6.2 percent.

The prices for vegetable oil (73.5 percent) and sugar (41 percent) rose the most.

In order to somehow influence the situation, the Central Bank raised the refinancing rate by 0.5 percentage points, bringing it to six percent. The refinancing rate is a uniform interest rate that the Central Bank applies when granting loans to commercial banks.

The main reason for the rise in prices is the rise in prices in the world market, and the new refinancing rate is too high, economist Vahagn Khachatryan believes. In his opinion, such a rate will have a negative impact on economic growth.

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What and how much has risen in price

Compared to last year, prices for food products increased by 8.3 percent, for other goods – by 8.5 percent.

The report of the statistics committee says that this was largely due to inflation of 5.3-7.8 percent.

Eventually

• eggs have risen in price by 55.7 percent over the year,
• vegetable oil – by 73.5 percent,
• sugar and granulated sugar – by 41 percent.

Compared to April 2020, gasoline rose in price by 31.1 percent, diesel fuel – by 11.1 percent.

And only the prices for flour and bread became lower – by 0.2 percent.

Position of the Ministry of Economy

The Ministry of Economy is “seriously concerned” about the rise in prices, but the issues of inflation and rise in prices are in the competence of the Central Bank, said the acting. Minister of Economy Vahan Kerobyan.

“Nevertheless, we are working closely with the Central Bank to curb inflation not only through monetary policy instruments, but also through economic measures. We are not going to sit idly by and try to contain inflation with proactive measures, ”the minister said.

In addition, in the minister’s opinion, inflation in Armenia is not very high in comparison with other countries of the world.

Explanations from the Central Bank

The Central Bank raised the refinancing rate to curb the rise in prices. Chairman of the Central Bank Martin Galstyan announced this the other day. According to him, the Central Bank is trying to convey to consumers the main signal – in the short term there may be a slight increase in prices.

After some stabilization of food prices on the world market, inflation is again observed in March. And Armenia as an importing country cannot avoid it.

“The world market has seen about 80 percent of the rise in oil prices, 40 percent of the rise in sugar prices. As a small importing country, we cannot ignore these prices. In other words, we do not have domestic production, which is aimed solely at meeting the needs of the domestic consumer. Therefore, as an importing country, we also import inflation, ”the Central Bank chairman said.

Comment

Economist Vahagn Khachatryan agrees with the opinion of the head of the Central Bank that the rise in prices in the country is due to the situation in the world market.

“Recently I read an interesting analysis in the Russian media about prices related not to Armenia, but to Russia. But, as it turned out, the picture is the same. The reasons lie in the global economy and the global market.

What is happening now, starting in July last year, is associated with unfavorable weather conditions for agriculture and, of course, most importantly, with the geo-economic situation that arose during the pandemic. “

However, according to the expert, the data of the last three months indicate that the Armenian economy is gradually recovering:

“There is a good trend with the export of production. The increase in prices is mainly related to the external market and external circumstances in the global economy. “

Khachatryan considers the increase in food prices by 8.3 percent to be too high for the Armenian economy:

“The maximum level should have been 5.5 percent, and now it is almost nine, that is, almost twice as much, which, one might say, is already a negative indicator for further actions of the Central Bank.”

At the same time, according to the expert, the Central Bank is responsible for inflation, and not for economic development:

“The Central Bank should influence the inflation rate. This is a one-way traffic, which, of course, does not mean that if the inflation problem is solved, the country’s economy will grow.

But the constitution stipulates that for the stability of the financial condition, the Central Bank is responsible for inflation. The Central Bank has already got down to business. But if he raises the refinancing percentage too high, this will already have a negative impact on economic growth. “

Moreover, the economist also called the current refinancing percentage of six percent, which was set by the Central Bank, too high:

“This means that our revenues will fall, and not only revenues, but also productivity, and the economy will stall. Now the most problematic issue for the Armenian economy is to stop inflation and develop the economy at the same time. And so that it does not affect the income of citizens in any way.

It is difficult economically. Last year, the republic went through two crises [talking about the coronavirus pandemic and the war in Karabakh], to which the uncertainty in domestic politics was added. In addition, the exchange rate of the national currency has depreciated, which is why the prices for imported goods have increased.