The Albanian economy will continue to have spare capacities in the capital and labour markets, avoiding potential wage – inflation spirals and producing contained inflation pressures in the medium run. In addition, imported inflation is expected to decline and administered prices effects are expected to be eliminated in the medium run. In the presence of anchored inflation expectations by economic agents, the Bank of Albania deems that consumer price inflation will gradually settle close to its target of 3% in the period ahead. *** Drawing on the information above, the Supervisory Council of the Bank of Albania deemed that inflationary pressures remain, in the short run, high. However, they are controlled and in the medium run they are expected to follow a downward trajectory. In the absence of unexpected shocks, inflation is expected to be within the target band of the Bank of Albania throughout the monetary policy time horizon. Inflationary expectations of economic agents continue to be within the inflation target range, which is essential under the conditions of the simultaneous presence of the negative output gap and high foreign prices. The Bank of Albania is fully committed for anchored inflationary expectations in compliance with its inflation target and stands ready to accomplish its mandate, by preventing materialisation of constant pressures on inflation. We deem that the monetary conditions are appropriate to stimulate economic growth, without generating additional inflationary pressures. Given the fragile equilibriums of the Albanian economy, this philosophy will continue to lead our activity in the period ahead.

On the demand side, economic activity relied mostly on foreign demand and public spending, while private sector contribution was low. Indirect data support the assessment for a weak private consumption performance during 2011 H1. In spite of increased available income and improved bank lending – as indicated by higher employment, real wage and consumer and house-purchase loans – consumer confidence was low. The Albanian consumer continues to be cautious in spending, displaying added saving preference over a number of quarters. Naturally, this behaviour is a structural correction of the consumption model shown over the past years, but the slow performance of consumer spending reflects, also, added uncertainty about the future. While the first component is welcomed, in the context of preserving macro- and micro balances, the second component may and should be corrected: households consumption has the potential to grow and be stimulated in the short and medium run. Taking into account the significant impact of consumption on the GDP, its performance will substantially condition economic growth during this time span. 2  BIS central bankers’ speeches  Private investments increased at moderate pace during 2011 H1 as illustrated by higher loans for investment and imports of capital goods. Although financial terms – availability, liquidity and bank interest rates – are significantly improved, the existence of spare capacities in the economy limits the demand of businesses for investment. In the short run, the position of economic activity operating below its potential conditions a slow performance of investments.