Central Bank of Azerbaijan raises annual inflation forecast

Under the baseline scenario, annual inflation in Azerbaijan is expected to be 5.9% in 2026 and 4.5% in 2027, according to the Central Bank of Azerbaijan (CBA), Report informs.

Previously, the CBA had declared that annual inflation would be 5.5% in 2026 and 4% in 2027.

The upward revision to the inflation forecast is mainly driven by stronger external cost pressures, including rising global food prices, increasing inflationary pressures among trading partners, and a slower pace of appreciation in the nominal effective exchange rate. Weaker demand-side factors compared with the February forecast partially offset the upward impact of supply-side pressures on inflation. Overall, the May projections suggest that inflation is expected to be driven primarily by supply-side factors.

"Rising geopolitical tensions since the last meeting have increased the role of external factors in the balance of inflation risks. The conflict in the Middle East disrupted supply chains, leading to high transportation and insurance costs, while also triggering volatility in global energy prices. Persistence of these developments for the rest of the year will be the main factor determining the dynamics of inflation in trading partners. International financial institutions have already revised their global inflation forecasts for the current year. Looking ahead, the scale of imported inflation will depend both on inflation trends in trading partner countries and on movements in the nominal effective exchange rate. At the same time, as inflation expectations could stimulate consumption more strongly than anticipated, they remain the primary domestic risk factor for inflation," reads the statement by the CBA.