Inflation at a gallop in azerbaiian

The process of the drop of money in Azerbaijan acquired a threatening character. According to the data provided by the State Statistics Committee of Azerbaijan, the growth rates in the inflation in the first half year made up 20.2% as compared to the same period of 2007. This means that the inflation in the Republic overstepped the threshold of moderation and passed into the form of the galloping inflation, for which an annual increase in the prices from 10% to 50% was characteristic. In the economic science, such inflation is considered as dangerous for the economy, and requires the Government of the country to take urgent anti-inflation measures.

Azerbaijan went independently and right through to this index of inflation, regardless of warnings of the international financial institutions, which had forecasted two-figure level inflation for Azerbaijan already 3 years ago. In particular, the International Monetary Fund (IMF) furiously called upon Azerbaijan Government to stop the increase in the Public expenditures, especially when as a result of corrections to budgetary forecasts in 2006, Public expenditure increased by 70%. The IMF recommended annually increasing the expenditures only by 5-6%.

However, Government's response to these warnings appeared to be groundlessly simple: "We cannot sit idly and not to increase our expenditures of budget in order not to stimulate inflation. We should place a good budgetary base for the next years".

The Government the Country attained its goal. The budget of the country grew by more than 5 times during 3 years (from 2005 to 2008). Thus, if the incomes of the Public budget of Azerbaijan in 2005 totaled AZN 2055.2mln and expenditures - AZN 2140.7mln, then according to the forecasts in 2008, the incomes of Public budget will total AZN 10484mln and expenditures - AZN 11060.6mln. In addition, it is impossible to purchase the same volume of goods and services for the same amount of money three years ago and today.

The Chairman of State Statistics Committee, Arif Valiyev, considers the reason for the inflation increase is the price rise for services in Azerbaijan as a result of the first half year. The services became more expensive due to the tourist vouchers, repair of cars, housing. Even despite the fact that the prices for the foodstuffs in June reduced, it did not affect the reduction in the index of consumer prices.

According to the data by the State Statistics Committee, as compared to the first half year of 2007, in January- June, the prices for the foodstuffs grew by 28%, nonfood - 10.6% and service tariffs - 11.2%. The growth rates in the prices of consumer goods and service tariffs made up 1% as compared to May 2008. The prices for the foodstuffs fell in June by 0.5%, but for nonfood products rose by 0.5% and service tariffs - 1.2%.

Structure of prices for consumer goods in June 2008

Structure of prices for non-foodstuffs in June 2008

"It is difficult to forecast Inflation because it will depend on how the prices in the consumer market will change, Valiyev said. Unlike previous years, this year the deflation, observed in the summer period, yet has not taken place. He considers that if in July or August the deflation will be observed, this will serve reduction in the inflation.

Valiyev confirmed that the growth rates in the inflation in Azerbaijan practically approached the forecasts of the International Monetary Fund (22%) although the expectations of Government for this year were at the level of 13-14%. On the basis of data for the first half-year, the Ministry of Economic Development intends to re-consider them.

In the economic science the following reasons for inflation are distinguished:

1. Monopoly of large firms in determining prices and own production costs, especially in the raw materials sphere;

2. Monopoly of trade unions, which limits the possibilities of market mechanism to determine the level of wages acceptable for the economy;

3. Decrease of the real volume of national production, which with the stable level of money mass leads to inflation increase because the previous amount of money corresponds to the smaller volume of goods and services;

4. Increase in the Public expenditures, for financing of which the State comes running to the money issuance, increasing money mass over the needs of commodity turnover.

However, in the case of Azerbaijan it should be assign:

1.Increase of the currency flow into the Public budget because of the increase in the incomes from sale of oil in the world markets with high prices;

2.Imported inflation.

Thus, the basic reason for inflation in Azerbaijan is the flow of additional oil monies to the country in view of high world oil prices. These unearned monies, which come to the country due to the happy fate, provoke an increase in the money turnover and accordingly in the inflation. Thus, the incomes of the State Oil Fund of Azerbaijan in the first half year of 2008 totaled AZN 4 893.9mln, with 98.2% coming from sale of profit oil.

The imported inflation became a disseminated phenomenon together with the globalization of the economy - with the sharp increase in the flows of goods, investments, credits, information. Trade with the country, in which the inflation rages, leads to the accumulation of the unpaid obligations, and a drop in the rate reduces the cost of export profit. It results in transfer to the market of partner "microbe of inflation". The sharp increase in the world oil prices undoubtedly affects

the consumer market of the country, which strongly depends on import. Over last 3-4 years, the oil prices in the world increased by three times, which led to a price hike for all goods. According to the preliminary data of the Statistical Bureau Eurostat, in July 2008 the inflation in 15 countries, which are part of the Euro-zone, reached new historical maximum in 4.1% in the annual calculation. The increase in the consumer prices in June of this year was 4% against 3.7% in May.