Based on the baseline scenario, annual inflation is projected to be within the target range in the current and next year.
Modern.az reports this, citing the Central Bank of Azerbaijan. It was noted that, according to the CBA's May forecasts under the baseline scenario, annual inflation is expected to be 5.9% in 2026 and 4.5% in 2027.
The upward revision of the inflation forecast is mainly due to the activation of external cost factors. These factors include an increase in the growth rate of global food prices, the activation of inflationary pressures in trading partners, and a slowdown in the strengthening of the nominal effective exchange rate. The weakening of demand factors compared to the February forecast partially neutralized the upward impact of supply factors on inflation. Overall, according to the May forecast, a significant part of inflation is expected to be formed by supply factors.
It was emphasized that the increased geopolitical tension since the last meeting has raised the role of external factors in the balance of inflation risks. The conflict in the Middle East has created obstacles in supply chains, leading to higher transport and insurance costs, as well as increased price volatility in global energy markets in an upward direction. The continuation of these processes for the remainder of the year will be the main factor determining the dynamics of inflation in trading partners. For information, global inflation forecasts by international financial-credit organizations for the current year have also been revised upwards. In subsequent periods, the scale of import inflation will depend not only on inflation in trading partners but also on the dynamics of the nominal effective exchange rate. The possibility of inflation expectations increasing consumption more than expected is one of the main domestic risk factors.
