Record Inflation Hits Macedonia

Macedonia's finance minister called for public calm Friday, insisting that there was no need to panic over recent price hikes in the country.

The price increases have followed a record 9.6% rise in inflation in the first two months of 2008.

Minister Trajko Slavevski said that the high inflation afflicting Macedonia's economy is a short-lived phenomenon, because "there is no increased demand in credits that could further feed the rise in prices".

His statement comes after the National Bank of Macedonia, NBM, increased the referent interest rates Wednesday, as part of a package of extraordinary measures aimed at tackling the unforeseen rise.

The Bank also stated that the country's foreign currency reserves of over €1.5 billion will be enough to keep inflation within controllable parameters.

Macedonia's State Statistical Office insisted last week that the increase is mostly a result of a rise in food prices of over 18% since the beginning of the year, which accounts for around 75% of the overall inflation. However, in its Wednesday press release the NBM admitted that inflation has been increasingly noticeable in other areas too. It also warned of the "rather intensified" negative psychological factor that inflation had on prices.

The NBM argues that the increase in demand of goods that initiated the inflation is a result of an "intensified rise in wages and crediting over the past few months".

In the last quarter of 2007, the nominal rise in the average net income was 11.8%, while in real terms it was just 6.6%.

In January 2008, the annual rate of crediting growth in Macedonia's commercial banks rose to 40%.

The last few weeks have seen financial experts publicly argue that the annual inflation rate at the end of 2008 could substantially exceed the projected two per cent if the January and February trend continues.