There are always several aspects to be taken into account and the question of which scale weighs the heaviest will depend on the specific situation at the time of each repo-rate decision. And the further inflation is from the target, and the longer it remains so, the greater the weight this scale will carry, despite the remaining risks linked to household indebtedness and the housing market. 27  HM Treasury (2014): “Circumstances may also arise in which attempts to keep inflation at the inflation target could exacerbate the development of imbalances that the Financial Policy Committee may judge to represent a potential risk to financial stability. The Financial Policy Committee’s macroprudential tools are the first line of defence against such risks, but in these circumstances the [Monetary Policy] Committee may wish to allow inflation to deviate from the target temporarily, consistent with its need to have regard to the policy actions of the Financial Policy Committee.”  BIS central bankers’ speeches  9  References Alsterlind, Jan, Holmberg, Ulf, Jönsson, Kristian, Lagerwall, Björn and Winstrand, Jacob (2013), Risks to the macroeconomy and financial stability from the development of household debt and housing prices. Memo 6 of the analysis group of the Council for Cooperation on Macroprudential Policy. Sveriges Riksbank. Bank of Canada (2012), Backgrounders – Monetary Policy. Bayoumi, Tamim, Dell’Ariccia, Giovanni, Habermeier, Karl, Mancini-Griffoli, Tommaso, Valencia, Fabián and the IMF Staff Team (2014), Monetary Policy in the New Normal. IMF Staff Discussion Note 14/3, IMF.

Referring back to the performance of inflation, INSTAT data reveal that consumer prices rose on average 2.5% in the first quarter of 2013. Inflation continues to be determined by food prices; their contribution accounts for about 90% of headline inflation. Moreover, food inflation was offset by the lower inflation of non-food consumer goods. Inflation of this category reflected the downward oil price, following its decline in international markets. Also, the price fall of long-term consumer goods provided downward effects, whereas prices of other consumer goods did not change significantly. From the macroeconomic perspective, inflation continues to reflect the weak pressures from the aggregate demand-side and the absence of supply-side shocks. Below-potential growth of aggregate demand leads to underutilisation of production capacities and generates weak pressures on increasing wages, producer prices and profit margins. Under these circumstances, internal pressures on consumer prices appear weak, as reflected by the low core inflation. On the other hand, imported inflation was subdued due to the low inflation in Albania’s trading partners and the stable exchange rate. The most recent data on the real economy are as at 2012 Q4. According to these data, the Albanian economy grew 1.7% driven by expanded activity in the services, industry and agriculture sectors. The activity of the construction sector continued to shrink. Data on economic activity for the first quarter of this year remain limited. Based on indirect indicators, our analyses point to low economic growth, relying mainly on foreign demand, while the domestic demand components continue their sluggish performance.