Baku: Citing the Central Bank of Azerbaijan, the baseline scenario suggests that annual inflation will remain within the target range for the current and next year.

According to Azeri-Press News Agency, the Central Bank of Azerbaijan's May forecasts indicate that, under the baseline scenario, annual inflation is expected to reach 5.9% in 2026 and 4.5% in 2027. The upward revision of the inflation forecast is attributed mainly to the activation of external cost factors. These include the acceleration of global food price growth, increased inflationary pressures in trading partner countries, and a slowdown in the strengthening of the nominal effective exchange rate. The weakening of demand factors compared to the February forecast has partially neutralized the inflationary impact of supply factors. Overall, a significant portion of inflation is expected to be shaped by supply factors, according to the May forecast.

Growing geopolitical tensions have increased the role of external factors in the balance of inflation risks since the previous meeting. The conflict in the Middle East has disrupted supply chains, leading to higher transportation and insurance costs, and intensifying upward price volatility in global energy markets. These continuing processes will be the main factor determining inflation dynamics in trading partner countries during the remaining period of the year. Additionally, global inflation forecasts for the current year by international financial institutions have been revised upward. In the coming periods, the scale of imported inflation will depend on inflation in trading partner countries and the dynamics of the nominal effective exchange rate. Increasing inflation expectations, leading to higher consumption than anticipated, is also among the main domestic risk factors.