Why does the government increase the inflation forecast?

Azerbaijan's inflation forecast has been raised, with the average annual inflation for 2023 expected to reach approximately 10.4 percent. The Ministry of Finance revealed this information in its "certificate on the semi-annual implementation of the state and consolidated budgets for 2023 and the expectation document for the end of the year."

Initial forecasts had predicted an average annual inflation rate of 6.9 percent for 2023, but after revisions and considering expected trends, the actual projection has increased to 10.4 percent, exceeding the initial estimate by 3.5 percentage points.

In an interview with Radio Azadlig, economists have weighed in on the reasons behind the higher inflation forecast. Azer Mehtiyev, an economist, pointed out that the Azerbaijani government typically does not disclose in advance the sectors in which it plans to increase prices. He emphasized that there is no program in place outlining when and why price hikes may occur, making it challenging to predict the government's actions in this regard.

One of the possible reasons for the inflation increase, according to Mehtiyev, is the significant price hike experienced in certain sectors last year, driven by both global economic trends and internal circumstances. He suggested that such price increases might occur again, especially considering the ongoing rise in global prices.

The government had initially set a self-determined inflation target of around 8 percent for the year, but it is now clear that this target will not be attainable. Economist Azer Mehtiyev mentioned that many countries, faced with similar challenges, revise their inflation goals due to external factors beyond their control and the insufficient measures taken internally to curb inflation.

MP Vugar Bayramov also acknowledged the active inflation trends in the first half of the year, with a relative decline observed in July due to seasonal factors, such as the introduction of local products during the summer months. Despite this, import inflation remains active and continues to affect domestic product prices. Bayramov believes the probability of registering double-digit inflation in 2023 is quite high, given the inflation rate observed in the first seven months of the year.

The State Statistics Committee (SSC) reported an inflation rate of 12.7 percent in the first six months of 2023, although independent economists believe the actual figure may be even higher. The government and relevant authorities are urged to take steps to optimize demand, minimize inflationary factors, and address the impact of imported raw materials on local product prices to combat the persistent inflationary pressures.