BAKU, Azerbaijan, February 28. According to the revised January prediction, Azerbaijan's annual inflation from 2025 through 2026 would stay within the target range of 4±2 percent, with attention needed on the medium-term implications of loan investments and budget spending, Trend reports via the Central Bank of Azerbaijan (CBA).
The CBA's projected inflation trajectory for fiscal year 2025 is anticipated to be at a rate of 5.5 percent.
On this account, inflation is expected to rise by 0.51 percentage points (directly by 0.34 percentage points and indirectly by 0.17 percentage points) in regulated prices, 0.34 percentage points in government consumption, 1.59 percentage points in household consumption, 2.08 percentage points in agricultural producer prices, 2.57 percentage points in inflation in trade partners, and 0.62 percentage points in other factors
"The nominal effective exchange rate (NEER) is expected to have a 2.21 percentage point, reducing the impact on inflation. The January forecast for 2025 has been revised down by 0.3 percentage points compared to the October forecast of the previous year. One of the main reasons for this revision is the upward revision of the NEER forecast," the CBA said.
The CBA said that predictions from January indicate that the NEER will strengthen by 8.2 percent by the end of 2025 (compared to 7.9 percent in October).
"This revision is expected to have a reducing impact of 0.08 percentage points on the inflation forecast. Another reason is the downward revision of the GDP deflator (GDPD) forecast. It is expected that the GDPD will increase by 4.2 percent by the end of the current year (the October forecast was 6.8 percent). This revision is expected to have a reducing impact of 1.25 percentage points on the inflation forecast.
The January inflation forecast for 2026 is 3.8 percent. For 2026, government consumption is expected to increase by 0.33 percentage points, household consumption by 1.33 percentage points, GDPD by 2.21 percentage points, inflation in trade partners by 1.95 percentage points, while NEER and other factors are expected to reduce inflation by 1.59 and 0.43 percentage points, respectively.
The realization of inflation forecasts will depend on changes in a number of external and internal risk factors. External risks are mainly related to inflation processes in partner countries. High geopolitical tensions and obstacles on important trade routes in a globally fragmented environment could lead to a rise in commodity prices again. In addition, global climate change could impact productivity and global food production.
The main internal risks that could increase inflation are related to local cost factors (particularly the expected higher indirect effects of changes in regulated prices) and excessive increases in aggregate demand. According to preliminary estimates, the growth of government budget expenditures in 2025 is not expected to create significant inflationary pressure. However, the impact of budget expenditures and credit investments on inflation in the medium term should be carefully monitored.
Inflation expectations vary across sectors. Based on the results of the real sector monitoring conducted in December 2024, relatively high price expectations were recorded in the services and construction sectors for the next three months. Expectations in other sectors, such as trade, remained in the negative zone. In the non-oil and gas industrial sector, variability was observed throughout the year, with expectations shifting from the negative to the positive zone.
In the industrial sector, the price index in December was 4.87 (compared to 5.29 in the same period of the previous year), in trade -3.92 (compared to -28.25 in the same period of the previous year), in construction 16.22 (compared to 4.8 in the same period of the previous year), and in the services sector 21.01 (compared to 21.21 in the same period of the previous year)," the CBA explained.
Stay up-to-date with more news on Trend News Agency's WhatsApp channel