When the monster of “inflation” turns into an image of a “bear”
The Board of the RA Central Bank during its June 25, 2013 session decided to leave the refinancing interest rate unchanged.
Let’s remind the readers that the refinancing interest rate is the so-called value of money and the main tool that the CB can use to influence on inflation. It means in the event of inflation this interest rate goes up and the value of money increases.
This decreases the gross demand and restrains the inflation. Indeed, before leaving the interest rate unchanged the CB has thoroughly analyzed the external and internal factors, the developments of the previous period, etc. All this is portrayed in its release. As of the upcoming predictions, in particular the increase of gas and power price and its influence on inflation, indeed the CB spoke about that but with quite unclear formulations.
“In the meantime the CB is ready to relevantly respond to the expectations of inflation possibly caused by the increase of the gas and power prices. In this regard, it is predicted that by the second quarter of the next year the 12-month inflation will approach the margin of 4% and the economic growth will occur in its balanced level,” reads the CB release.
Do you feel that something is missing here? The release doesn’t mention how much the inflation will be by the end of the year most probably in order not to spoil the moods of the people. Instead, they immediately transition to the end of the first quarter of 2014. This reminds of one of the old and popular jokes when the husband points his gun to the disloyal wife and makes her to tell in detail what the neighbor has done to him. The woman starts by saying that he first kissed her eyes, lips, then breasts, then stomach, then legs…
Then the husband shouts, “hey I am telling me to tell me in detail…” We are facing a similar situation now. No matter how bitter the reality might be, it should be presented. Of course, they made certain calculations in the CB but they didn’t include this information in their report. But the CB two weeks ago had to a certain extent opened the parentheses.
During the meeting with journalists on June 11 a member of the CB board Artur Stepanyan stated that in the coming year the inflation will fluctuate in the margin of 8%. “The change of the price of gas and power will immediately affect the inflation in the country,” he said by adding that energy products amount to 10,5% of the consumption basket.
Moreover, according to Stepanyan the inflation will once again appear in the margin of 41,5% from the second half of 2014. As you remember, however, the CB release mentioned that the inflation will be reflected in the second quarter of 2014. It means there are either conflicts within the CB or the words of Artur Stepanyan were not accepted right.
Secondly, the main reason of the expected inflation is beyond the frontiers of the country and the CB has got nothing to do here. By the way, back in the day the CB prepared an animation film titled the monster of inflation. Based on the film the CB did a good job fighting the monster but it won’t be able to fight the “bear” and especially if this bear is outside the borders of Armenia.
By Babken Tunyan
