Price pressures are slowing down worldwide, but what about the inflation forecast for Azerbaijan?
    An observation by Caliber.Az

    ANALYTICS  30 November 2022 - 15:43

    Khazar Akhundov

    Efforts by the world’s leading central banks to tighten monetary policy, as well as a notable drop in supply chain problems, increase the likelihood of easing inflationary pressures. Next year’s recession should further contribute to this, which will help reduce commodity prices and freight rates to some extent. All this is expected to slow down the flywheels of the imported inflation, which is the main reason for the price increase in our country. These trends have been taken into account by the parliament when approving the State Budget of Azerbaijan for 2023, with the inflation forecast halved in its draft document.

    According to several important indicators, global inflationary pressures reached their peak in early October, and the pace of price increases in the coming months will ease. Referring to Financial Times analysts, the available statistics suggest that the problems in the supply chains are easing. In fact, the prices of leading manufacturers of goods, the cost of raw materials, components, as well as ship charters and tariffs for other modes of transport are gradually dropping today from recent record-high numbers.

    Inflation has already reached its peak in several dynamic economies and is slowing down, including Brazil, Chile and Thailand. Similar trends are also observed in developed countries such as Germany, where prices of goods fell by 4.2% in October compared to the previous month. In the US and UK, the growth of wholesale prices in annual terms is slowing down since the summer of this year.

    As of October 2022, the G20 countries recorded an overall decline in the annual growth rate of producer prices according to Capital Economics. A similar opinion is held by analytic experts at the international rating agency Moody’s Analytics, which believe that inflation probably reached its peak level of 12.1% in October 2022. Since then, the easing of price pressures and supply-chain problems has brought about a rapid slowdown in prices.

    To some extent, these positive trends are linked to the tightening of the US Federal Reserve’s (Fed) monetary policy, which recently raised the interest rate by 75 basis points, ranging now between 3.75% and 4% per annum. Similarly, the European Central Bank (ECB) has also increased the refinancing rate by 75 basis points, to 2%, and plans to increase it further in the next six months. Refinancing rates are also rising in Canada, Switzerland, Israel, South-East Asia, South Africa and several other regions around the world. This is done to curb inflation, but indirectly leads to an increase in the cost of credit and, consequently, a slowdown in economic growth, which reduces global demand for goods, components and commodities, including energy.

    Unsurprisingly, all recent forecasts by the International Monetary Fund (IMF) and the World Bank suggest that the risks of a global recession are mounting as monetary policies are tightened by regulators. Capital Economics experts share a similar opinion, predicting the US gross domestic product (GDP) to shrink by about 0.5% in the next six months. An even more unpleasant forecast was given by them for the recession in the EU and the UK, where already today, against the background of the energy crisis and the severance of trade ties with sanctioned Russia, there is a decline in production. Next year’s GDP may fall by more than 2%, given the intensification of destructive trends that are harming the already shattered globalist world order of the past three decades.

    Bloomberg, in this regard, recalls the new US law aimed at reducing inflation, which includes lightening the tax burden and providing incentives to American energy companies to encourage people to buy local goods (“Buy American” initiative). A key provision of the US law is a tax deduction on sums of up to $7,500, encouraging consumers to buy US-assembled electric vehicles that have batteries made with American components.

    Washington, which was generally promoting the new law, was motivated primarily by the idea of China’s economic isolation but Germany and France, the EU’s strongest economies, believe that the US initiative is essentially protectionist and violating market competition. There also exists a view in the EU that unilateral steps by the US will inevitably have a negative impact on the European industry and may eventually split transatlantic unity. Wherever possible, France’s President Macron calls European countries to fight against the “unfair policy of the USA” and to adopt a similar law, namely to “buy European”.

    Concerns about the new US law are also being raised in Japan.

    Either way, the regulators' policy of raising interest rates and US protectionist moves will contribute to a decline in global trade turnover by slowing stock-market activity and cooling the overheating of some segments of commodity markets. All of this together will certainly slow the global economy, but a reduction in inflation could be a positive effect of the expected recession.

    This is a very important point, as the factor of imported inflation is still the main cause of the price increase in Azerbaijan. At his recent address at the plenary session of the national parliament (majlis), the Chairman of the Central Bank of Azerbaijan (CBA) Taleh Kazimov noted that in October the annual inflation in the country amounted to 15.6% and, according to CBA’s estimates, this is mainly due to external negative issues: imported inflation.

    Quite a justified conclusion, as negative processes observed in the world inevitably create risks for Azerbaijan. However, our country’s resilience to crises is based on a low level of public debt, growing foreign exchange reserves and, not least, a positive foreign trade balance, which will continue in the coming year, given the still high oil prices and plans to increase gas exports to the EU through the Southern Gas Corridor. Judging by the draft state budget for 2023 presented in the mejlis and published data of economic, social and other nature, next year’s GDP growth is estimated at 2.7% which will significantly increase in 2024 to reach 4.1%. It will maintain moderate growth in 2025-2026 of 3.7% and 3.4% respectively. Thus, our country will not only maintain its enviable crisis resilience in the foreseeable global recession but will also ensure macroeconomic stability, with priority given to the implementation of a set of measures to curb consumer price rises.

    The Government of Azerbaijan is quite optimistic in this regard and, within the framework of the budget package for 2023, forecasts average annual inflation of 6.9%. Fighting inflation and strengthening monetary stability is the main goal of the CBA for the future, and the next step in this regard was to increase the interest rate by 25 basis points - up to 8% in late October. The lower threshold of the percentage corridor has been increased from 4% to 5% with the upper limit kept at 9.25%.

    “The CBA will continue the policy of stable exchange rate of monetary policy next year. Our mandate is to ensure macroeconomic stability, price stability”, Chairman Kazimov stressed.
    Leading international financial institutions also confirm the trend of decreasing the inflationary burden in Azerbaijan: in the October updated IMF forecast for the world economy, the average annual inflation rate in the republic is noted to fall to 9% in 2023, meaning a single-digit level. In turn, the European Bank for Reconstruction and Development (EBRD) predicts in their report titled “Transition Report 2022-2023” that the average annual inflation in Azerbaijan this year will fall to 12.2% with the prospect of further decline to one-digit levels next year.

    Whether these positive expectations will be true will become clear next year. For now, it is clear, that the pressure from the imported inflation will be softer in 2023 than it was in the past 18 months.


    Subscribe to our Telegram channel

Read also

Yerevan dreams of international mission in Karabakh Dream on since the mission impossible!

27 January 2023 - 11:10

EU mission - an attempt to delay Armenia's peace enforcement Yerevan hiding behind other's back

27 January 2023 - 10:20

Holocaust: Darkest period in world history Remembrance in light of modern global threats

27 January 2023 - 09:00

Will Sweden and Finland's NATO membership bid shift Türkiye’s foreign policy course? Hurdles remain for Nordic countries

26 January 2023 - 15:00

Azerbaijan eyes conquering EU food market Review by Caliber.Az

26 January 2023 - 12:31

US policy on Ukraine may set the stage for domino effect in East Asia Maxim Petrov's scenario

26 January 2023 - 15:31
Latest news

    OTS secretary general condemns attack on Azerbaijani embassy in Iran

    27 January 2023 - 14:32

    Iran’s growing paranoia toward Azerbaijan

    From the streets to the border

    27 January 2023 - 14:27

    Georgia tests locally produced drones

    27 January 2023 - 14:25

    MFA: Embassy attack provoked by anti-Azerbaijan campaign in Iran

    27 January 2023 - 14:21

    Israeli MFA: We are shocked by heinous attack on Azerbaijani embassy in Tehran

    27 January 2023 - 14:20

    US embassy condoles with Azerbaijan over armed attack on embassy in Tehran

    27 January 2023 - 14:18

    Poland demands to supply more weapons to Ukraine

    27 January 2023 - 14:11

    Russia expects those responsible for attack on Azerbaijani embassy in Iran to be punished

    27 January 2023 - 14:04

    Tourist flow from Russia to Japan down by 11.5 times

    27 January 2023 - 13:59

    Azerbaijan launches criminal case into terrorist attack on embassy in Iran

    State Security Service statement

    27 January 2023 - 13:58

    PM: Hungary losing over $10 billion per year due to EU sanctions against Russia

    27 January 2023 - 13:46

    UK intelligence denies Russia’s statement about success near Orikiv, Vuhledar as disinformation

    27 January 2023 - 13:41

    Russia's communists take to the streets demanding Putin be ousted

    27 January 2023 - 13:34

    MFA: Azerbaijan plans to evacuate embassy in Tehran soon

    27 January 2023 - 13:33

    Pakistan eyes starting oil import from Russia in April

    27 January 2023 - 13:27

    Kyrgyzstan, Uzbekistan complete border delimitation

    27 January 2023 - 13:20

    First EU-Armenia high-level dialogue meeting held in Yerevan

    27 January 2023 - 13:13

    Azerbaijani shipyard repairs near 100 vessels in 2022

    27 January 2023 - 13:06

    President Aliyev demands investigation into attack on Azerbaijani embassy in Tehran


    27 January 2023 - 13:03

    Besides Leopard, Poland ready to send Ukraine 60 more modernized tanks

    27 January 2023 - 12:59

    Le Monde: France hesitating to deliver Leclerc tanks to Ukraine

    27 January 2023 - 12:52

    Russian MFA spox: Azerbaijani embassy guard fought like a lion

    27 January 2023 - 12:48

    Turkish MFA, ruling party condemns armed attack on Azerbaijani embassy in Iran

    27 January 2023 - 12:48

    Hungary pledges to veto EU sanctions on Russia's nuclear energy

    27 January 2023 - 12:45

    Politico: US to send Ukraine more advanced Abrams tanks — but no secret armor

    27 January 2023 - 12:39

    Iranian threat now at Europe’s doorstep, Israel's Herzog tells NATO chief

    27 January 2023 - 12:36

    Toyota's huge announcement paves all-new way for automotive giant

    27 January 2023 - 12:32

    Iranian special services behind Azerbaijani embassy attack


    27 January 2023 - 12:29

    Ukraine unveils Russian military losses

    27 January 2023 - 12:25

    Türkiye unveils M60 battle tanks modernisation project


    27 January 2023 - 12:18

    Azerbaijan presented at int'l book fair in Egypt's Cairo

    27 January 2023 - 12:18

    Georgia's expertise bureau rejects diagnosis results of ex-president Saakashvili

    27 January 2023 - 12:12

    Envoy condemns Azerbaijani embassy attack in Tehran

    27 January 2023 - 12:09

    Croatian president believes tank supplies to Ukraine could lead to 3rd world war

    27 January 2023 - 12:07

    Shell considers withdrawal from Britain, the Netherlands, Germany

    27 January 2023 - 12:00

    Tehran police chief: "Family problems" stand behind Azerbaijan embassy attack

    27 January 2023 - 11:54

    Armenian opposition MP warns of Russia's reaction to EU mission deployment in Armenia

    27 January 2023 - 11:53

    Canada appoints first special representative to fight domestic Islamophobia

    27 January 2023 - 11:47

    US can send any specific weapon to Ukraine, including F-16

    27 January 2023 - 11:41

    Rheinmetall concern ready to send Ukraine only Leopard tanks

    27 January 2023 - 11:35

    Turkish, Russian foreign ministries condemn deadly attack on Azerbaijani embassy in Iran

    27 January 2023 - 11:28

    New EU monitoring mission to Armenia gets backlash from Moscow

    27 January 2023 - 11:27

    Far-right radical Paludan threatens Türkiye with new provocations

    27 January 2023 - 11:21

    Some 46 Azerbaijanis killed in mine blasts since November 2020

    27 January 2023 - 11:15

    Yerevan dreams of international mission in Karabakh

    Dream on since the mission impossible!

    27 January 2023 - 11:10

All news