Although it is said that the government is "reluctantly" allocating funds to the social sector, inflation is rising

 By the end of 2024, inflation in Azerbaijan is projected at 5.1%, increasing to 5.8% in 2025, as per the Central Bank's announcement. Just six months ago, in April, the bank had forecasted inflation at 3.5% for 2024 and 4.2% for 2025.

According to the State Statistics Committee, annual inflation over the first nine months of this year reached 3.5%. However, in recent years, the Cabinet of Ministers has signed orders on "urgent measures to strengthen anti-inflation efforts in Azerbaijan" and "additional measures to strengthen monitoring of inflation and prices." Some experts believe there is a significant difference between official inflation figures and real inflation.

The Central Bank stated that annual inflation remains within the target range (4±2%): "In September 2024, 12-month inflation was 3.5%, with food prices increasing by 2.9%, non-food goods by 1.9%, and services by 5.7%."

It was emphasized that while significant changes have not occurred in the risk balance of inflation, global economic uncertainties continue to exert inflationary pressures: "Against the backdrop of ongoing geopolitical tensions, disruptions in supply chains and international transportation persist. In this environment, possible volatility in commodity prices on international markets creates risks of increased import inflation."

The internal risk factors that could contribute to inflation include the activation of cost factors and the excessive growth in aggregate demand due to increased budget spending and credit placements.

Economist Natig Jafarli told Azadliq Radio that the government has sufficient tools to reduce inflation: "The 25% increase in diesel prices four months ago became a significant factor affecting inflation. In the agricultural sector, diesel fuel accounts for up to 40% of production costs. This was within the government's control, and if diesel prices had not been raised, inflation figures wouldn’t be as high as they are now."

He added that the government has another powerful tool – customs and tax duties: "Any changes in these are immediately reflected in inflation levels. If the government wants to fight inflation, it could reduce or even abolish VAT on food products and medicines. Although a three-tier customs duty system exists, imported products are often subject to the highest rate of 15%."

According to Jafarli, a more important long-term factor is a competitive environment, which could reduce inflation: "Although Azerbaijan adopted a Competition Code, we haven’t seen any impact yet. The code was implemented with considerable relaxation of the initially planned mechanisms, serving the interests of various groups rather than consumers. Aside from declarative slogans, we see no real steps to combat inflation."

He argues that there is always a significant discrepancy between reality and official figures: "In many countries, in addition to general inflation, price increases for 30 types of daily necessities are calculated separately. In Azerbaijan, however, the inflation basket includes 500 goods and services, and inflation is calculated based on these prices. Since the prices of many of them remain unchanged, the overall inflation figures drop. But if we calculate the price increases for 30 essential goods separately, we would see an extremely high increase."

Economist Zohrab Ismayil also observed that food prices significantly exceed the official figures: "We feel it in our daily lives, and this increase will continue next year."

Regarding anti-inflation measures, the expert noted that the Central Bank is not printing additional money and maintains the discount rate at a low level, yet budget expenditures increase inflation risks: "This particularly applies to expenses directed at construction and repairs. The government 'reluctantly' allocates funds to the social sector but spends large amounts on construction, further raising inflation levels."