Furthermore, the seasonal effect of domestic agriculture production supply was stronger this year, leading to further reduction of food items annual inflation. During 2011, consumer prices in Albania were subject to supply shocks, materialised in high imported prices. This effect was more moderate during July–August and, in the absence of sudden shocks, it is expected to subdue even further in the months ahead. Moreover, second-round effects are contained, under the influence of controlled expectations of economic agents on inflation. The domestic economic setting produced controlled inflationary pressures. Aggregate demand slowdown led to spare capacities of production factors and controlled long-term inflationary pressures on the economy. Therefore, core inflation was 2.9% in July, showing a downward trend, and was close to our inflation target. New economic data obtained in September are scarce. Following our earlier analysis and based on new available information, the Bank of Albania deems that the Albanian economy continued to grow during 2011. Economic activity relied primarily on public spending and exports surge, while the private sector demand had a slow positive performance. Consumption and investments were supported by crediting, but their upsurge is conditioned by hesitation to spend. Following the revised budget, the fiscal behaviour during the last two months is characterised by lower spending pace and lower budget deficit increase. Fiscal stimulus was present in the first quarter, while in the following months the fiscal policy was more contained, which is reflected in lower annual deficit increase.

Our assessments on economic outlook suggest a continuation of economic growth for the rest of the year. Foreign demand and public sector demand continue to provide positive contribution to aggregate demand upsurge, although more moderately than a year earlier. Private sector demand remains an important factor to determine economic growth in the future. Fiscal consolidation measures and the unfavourable situation in global markets and our trade partners will shift the short-term focus of economic growth to the internal demand: private consumption and investments. The capacity of these aggregates to compensate for the slowdown of the two main promoters of the insofar growth, will condition Albania’s economy performance over the upcoming 2–3 quarters. In the longer run, the performance of the Albanian economy shall be determined by its competitiveness and productivity as well as expansion of Albanian goods and services in foreign markets. This requires intensification of structural reforms at macroand microeconomic level as well as financial and macroeconomic stability in the country. *** Taking into account the information set out above, the Supervisory Council of the Bank of Albania deemed that inflationary pressures are downward and remain controlled in the medium run. Developments in the Albanian economy will continue to generate weak inflationary pressures, as a result of the negative output gap action. On the other hand, pressures generated by developments in global economy are expected to be downward. Economic agents inflation expectations remain anchored around the Bank of Albania target.