Azerbaijan, Baku / Trend / Inflation for food products in Azerbaijan made up 9.6% in the first quarter of 2007; this profoundly differs from the same period of previous years. In 2005 inflation comprised 5.7 and 8.3% in 2006.
Azerbaijan is now under pressure from the rise in energy prices, which is the main reason for high inflation in the country. A rise in energy prices immediately causes an increase in expenditure of the enterprises engaged in the production of consumer goods.
Moreover, the flow of foreign investment, mainly oil revenues, into the country is still in progress. Operations in currency conversion which stimulate the inflation process have been expanded.
Monetary factors influence inflation by 30-35%, for instance from budget expenditure which causes a rise in prices. Budget expenditure this year has increased by another 50%. The inflation process forces the Government to increase expenditure for social needs and salaries. That is a compensatory measure intended to support the buying ability of the public during an increase of inflation.
The Government and the National Bank of Azerbaijan plan to take measures for the maximum decrease of inflation by the end of the year.
However, the anti-inflation task on excessive consolidation of the national currency will be complicated due to the increase in oil revenue and the restricted opportunities of monetary policy caused by the non-development of the banking sector.
The success of the decrease of inflation remains questionable. After Azerbaijan joining the World Trade Organization (WTO) inflation in the Azerbaijani market is expected.
(Leyla Abdullayeva, the expert of Trend analytic centre).