Based on the most recent reading in September 2022, about a quarter of respondents have deflation expectations five years in the future, nearly as large as the share expecting inflation above 4 percent at the five-year horizon. Following the onset of the pandemic, aggregate uncertainty—which combines disagreement and individual uncertainty—increased but has also become more symmetric. Figure 4 shows the aggregate distributions of inflation three years in the future based on the SCE.14 Two-thirds of the widening of distributions reflect greater dispersion across respondents, and the remainder is due to greater uncertainty reported by individuals.15 Interestingly, the distribution of aggregate uncertainty before and during the first year of the pandemic was skewed to the upside, as seen in Figure 4. Since then, the rising share of those who report deflation expectations has caused the overall distribution to become more symmetric relative to the median. In terms of the uncertainty criterion, uncertainty does not increase linearly with the forecast horizon in the SCE. Figure 5 shows the distributions of aggregate uncertainty for one-, three-, and five-year-ahead inflation forecasts from September 2022. As Figure 5 shows, the distributions are very similar for the different forecast horizons. This seems consistent with the evidence that many respondents view the inflation surge as reflecting a unique set of developments.16 An additional, albeit indirect, measure of inflation uncertainty is provided by the distribution of expectations of interest rates from options.17 Although future interest rates depend on a variety of factors, the expectations about inflation are a key determinant.

Simultaneously, we have prolonged the maturity span of injecting operations to smooth down the upward slope of interest rate curve and we have expanded the base of eligible collateral to facilitate the access of financial institution in liquid funds. These operations of the Bank of Albania have helped control on interest rate level. Bank of Albania’s intervention has been more effective in controlling the short-term interest rates. The long-term interest rates of Government securities and loans revealed rising tendencies, owing to the Government’s demand for financing and the increased sensitiveness of the banking system towards liquidity indicators. In parallel, the depreciating exchange rate trends have complemented the easier monetary conditions framework, providing advantage to exports and trade deficit improvement. However, as we have constantly underscored in our statements, the Bank of Albania has been attentive to managing the momentary stimulus, aiming above all the achievement of its target for maintaining the macroeconomic stability, by preserving internal and external balances. Annual inflation in the first semester 2009 was 2.0 percent, recording a fall compared to inflation rates of the last year, but remaining within the Bank of Albania’s targeted band. Low inflation rates over the first semester of the current year are due to the weakening of inflationary pressures on the demand and supply side, consequent to raw materials price cut in the international market and the economic activity slowdown at home.