Inflation’s performance over the recent months was consequent to the balance of two main factors’ opposite actions. On the upward trend, high primary commodity and raw materials prices in world markets were transmitted to the domestic inflation in the form of higher imported inflation. In the short run, this phenomenon also contributed to core inflation, which was up compared with last year. High net inflation rate of non-tradable goods showed that a part of higher commodity prices materialised in second round effects in inflation. Latest developments in inflation affected also the economic agents’ inflation expectation, which, however, remain within the target band of the Bank of Albania. On the downward trend, domestic economy developments continued to provide an environment with contained inflationary pressures. Our assessments on economic activity suggest positive growth rates for the first quarter, although below the potential. Under these circumstances, the Albanian economy continued to be characterised by spare productivity capacities – labour and capital – and negative output gap, continuing to exercise downward pressures on inflation. Similarly, the monetary development analysis confirmed the presence of contained monetary pressures on the domestic economy. Following, I would like to address the economic factors that determined inflation developments and their expected performance. Albania’s economic activity, during the first months of the year, took place in the context of a growing global economy, amid increasing inflation pressures and added uncertainty in financial markets. Global economic activity continued to grow during the first half of 2011, led by rapid expansion of demand in emerging economies.

Despite a situation of increasing  BIS Review 168/2009  1  investment rates, the ratio of total savings to GDP reached 57% in 2008 against 48% in 2004, leading to a context of excess saving rates of 13% to 24,7% over the period. These developments have allowed sizeable reserve accumulation, particularly from 2004 $ billion 43) to 2008 $ billion 143) as a cushion against possible external shocks, including shocks of a “sudden stop” nature. Anchored to regained macroeconomic stability, a large public investment program was launched in 2001 (2001–04) followed by a larger one in 2005 (2005–09). Implementation of the two public investment programs significantly stimulated gross fixed capital formation, with public investments representing 56.5% of total investment in 2008 up from 40.8% in 2004. Over the past five years, public investments (economic and social infrastructure, housing, agriculture and water, others) amounted to $ billion 80 (representing 51% of a total of $ billion 156). It should be noted that foreign companies, particularly from Asia, hold a significant position in terms of implementation of the public investment programs. In parallel, the national oil company (Sonatrach) implemented ambitious annual investment plans over the past 3 years, increasing the annual investment envelope from $ billion 4.8 in 2006 to $ billion 8.5 in 2008. For the past 5 years, the ratio of Sonatrach’s investment to total investment reached 17.6% (17.1% in 2008). For 2009, Sonatrach’s investment program amounts to $ billion 16.5.