, average annual consumer price inflation was 3. 5 %, remaining close to the previous year ’ s average inflation rate. the performance of inflation was featured by a high volatility in the past year. over the first and second quarters, annual inflation rate approached the upper limit of the targeted band, mainly driven by rapid and sharp price rise for food and primary commodities in international markets. these pressures were short - term and soon moderated ; over the second half of the year, inflation started to fall gradually, marking 1. 7 % in december. besides the mitigation of imported inflation, the cancelling out of the effect of regulated price increases in the previous year and the lack of any further increase in them are factors impacting on the downward trend of the annual inflation rate. from the viewpoint of macroeconomic factors, the annual inflation volatility was induced by supply - side factors, while the demand - side inflationary pressures remained low. anchored inflation expectations prevented transmission of supply shocks to the cost structure of the albanian economy, dwarfing the effect of the supply shocks only on the first round effects. on the other hand, below - potential growth of the albanian economy led to an incomplete utilization of production capacities, generating moderate pressures on wages and production costs in the economy. also, the sluggish aggregate demand reduced businesses ’ ability to dictate prices in the economy and hence their profit margins remained at historically low levels. these developments were also reflected in the performance of core inflation, which fluctuated around the lower half of the bank of albania ’ s target band. finally, the bank of albania prudentially supplied the economy with liquidity and monetary expansion was in line with the economy ’ s needs for monetary assets, thus preventing the generation of inflationary monetary impulses. bank of albania ’ s monetary policy maintained its expansionary nature in 2011, responding to the performance of inflationary pressures balance and taking into account the contained fiscal stimulus. the sharp price increase in international markets and its rapid pass - through to domestic consumer prices in early 2011, led to key interest rate rise by 0. 25 percentage points in march. such a move aimed at anchoring inflationary expectations and preventing second - round effects on inflation, against the setting of projections for further international price increases. over the second half of the year, upon moderation of inflationary pressures and inflation ’ s falling back within the target, as well as upon the shifting of expected inflationary pressures balance downward, the monetary policy

ardian fullani : albania ’ s economic and financial developments in 2011 speech by mr ardian fullani, governor of the bank of albania, at the presentation of the bank of albania ’ s annual report 2011 to the parliamentary committee on economy and finance, tirana, 30 april 2012. * * * honourable chair, distinguished members of the committee, ladies and gentlemen, * * * before starting my speech, i would appreciate your kind understanding about the fact that the period after the submission of the report has enriched the 2011 ’ s economic data inventory with new information. it is understandable why this information is not incorporated into the submitted material. in the following, i will address overall economic developments based on the latest information, trying to also identify the differences between the latest data and the version available to you. * * * our annual meeting on introducing bank of albania ’ s annual report remains a special pleasure for me. more than a legal obligation, the bank of albania considers this report as an important step to enhance institutional transparency, foster accountability and intensify the dialogue with all economic policy - makers and stakeholders. let me now start with an overview of main conclusions of the report. the economic activity recorded positive growth rates, while the macroeconomic balances remained stable or were further strengthened. it should be emphasized that this activity was conducted against the backdrop of deteriorating global economic and financial situation in 2011. instat ’ s data reveal that albania ’ s economy grew 3. 1 % in 2011, supported mainly by the increased external demand for goods and services, whilst the domestic demand performed sluggishly. the economic growth was materialised into a better performance of services sector and individual branches of industry, while construction continues to suffer from sluggish demand and high inventory, especially of residential buildings. these developments reflect the internal restructuring of the economy and albanian business, in response to changed aggregate demand composition and the need for enhancing the economic competitiveness in the region and world - wide. consumer price inflation appeared volatile in 2011, due to upward prices in international markets and other supply - side shocks. however, the past year ’ s average annual inflation was 3. 5 %, i. e., in line with bank of albania ’ s target. the meeting of inflation target was driven by low inflationary pressures from the domestic economy, controlled monetary expansion and anchored inflationary expectations. meeting inflation target amidst a challenging environment, full of unexpected developments, reflects the effectiveness and credibility of bank of albania ’ s monetary policy. our