According to the data of the Azerbaijan State Statistics Committee, inflation in Azerbaijan made up 16.2% within the first five months of 2007. In the first quarter of the year inflation comprised 16.6%, while in the first four months 16.5%. So, despite the efforts of the Government to retain inflation at the same level, the forecasts of international finance organizations turned true and the inflation amounted to a two-digit limit.
Inflation rate in Azerbaijan observed within three months of 2007 is one of the highest among the CIS countries. So, according to the CIS International Statistics Committee, Azerbaijan takes the second place after Tajikistan, where rise in consumer prices amounted to 18.3%. As to the other CIS countries, the inflation rate is as following: Moldova - 11.7%, Ukraine - 10.3%, Georgia - 9.8%, Kazakhstan - 8%, Belarus - 7.5%, Armenia - 4.7%, Kyrgyzstan - 4.5%.
Analysis displays that the key reasons for high inflation in Azerbaijan is primarily the fact that Azerbaijan is under the pressure of rise in energy prices. Rise in energy prices immediately causes increase in expenditures of the enterprises engaged in production of consumer goods. As a result, consumer prices rise.
Secondly, the flow of foreign investments, mainly oil revenues, into the country is still in progress. Inflow of capital consolidates the rate of manat. Operations on currency conversion stimulating inflation have been expanded. Moreover, monetary factors influence inflation by 30-35%, for instance through budget expenditures which causes rise in prices. Budget expenditures this year have increased by another 50%. Inflation process makes the Government increase expenditures for social needs and salaries. That is a compensatory measure intended to support buying ability of the population while increase of inflation, but that directly affects further increase in inflation.
Thirdly, an important reason for rise in price is monopoly covering in fact all segments of Azerbaijani market. Earlier the monopolists exerted influence only upon the consumers, but today they can afford that with respect to the Government also.
It is well-known that the negative effect of this quite disappointing economic phenomenon primarily concerns ordinary citizens of Azerbaijan, who can afford themselves to spend their money for food only. Usually in summer deflation appears under the influence of season factors. For instance, the process appeared in Azerbaijan in previous years (drop in prices for season vegetables and fruits) and made the Statistics Committee and the National Bank of Azerbaijan seriously believe that the same will happen in 2007 and will not let the unfortunate inflation exceed one-digit figure. But in real inflation trend observed in most segments of consumer market including the market of agriculture products specially affected the market of construction materials which experienced 21.8% rise in prices, comparing the same period of 2006. As to the reasons for the rise in prices in the construction materials market, they are caused by livening up of the market, what reflected in increase in demand for several types of products. Most likely, the phenomenon will keep on till autumn. Another reason for inflation in the construction materials market is the trends in the world market of construction materials, which experiences gradual increase in demand for products. Notably, increase in expenditures of construction companies in Azerbaijan is still in progress.
Another consumer market, which is also of high importance for Azerbaijani citizens, is the pharmaceutical one and it also did not go without inflation. Prices for medicines in Azerbaijan rose by 25%. The price hike mainly covered imported medicaments. So, hike in prices for medicines is irregular. Prices vary depending on the distance to the importer country. The more the country is far the higher are the prices. At the same time rise in prices has not covered all medicines yet. The prices for several medicaments which were purchased at old prices and are stored in storehouses still keep at the same level. As 90% of demand in medicaments is met by import, transport and other expenditures increased due to rise in energy prices. In order to cover the expenditures the prices for medicines can be raised by another 5-15%.
Given all these figures, Azerbaijani Government has plans to take all possible measures for maximal decrease in inflation by the end of the year. For this purpose, first of all, monetary measures that are the arrangements providing for money-and-credit field should be implemented, manat should be sterilized, securities should be issued, and money supply should be drawn to banks. However, the task on retaining of low inflation and prevention of excessive consolidation of the national currency the Government and the National Bank task with will be complicated due to due to increase in oil revenues and the restricted opportunities of monetary policy caused by non-development of bank sector. In particular, the European Bank for Reconstruction and Development (EBRD) recommends the Government to be prudent while raising public expenditures, despite urgent want of modernization of infrastructure and high poverty level. Otherwise, success in decrease in inflation will be put under question. According to the forecasts of the International Monetary Fund, inflation rate will increase up to 20% this year. For this reason, after Azerbaijan's joining the World Trade Organization (WTO) inflation in Azerbaijani market can be again precipitated.
However, let's view the considered situation from other side. Owing rise in prices energy enterprises, for instance, will receive high financial incomes and the key task is to provide for their transfer into the public budget which will allot funds for improvement of life conditions of poor strata of the population. The statistics say that growth rate of salaries in Azerbaijan during the recent years exceeds inflation rate. So, in the first quarter of this year nominal incomes of the population increased by 35%, per capita incomes by 33%, average monthly salary by 26%.