War and tourism drive up prices, inflation jumps to 3%, highest level in 29 months

Prices have increased significantly over the last two months, reflecting the consequences of the War in the Middle East, which made energy more expensive, with a knock-on effect on other products, as well as the effect that the high influx of tourists is having on the cost of housing for locals.

INSTAT reported that the inflation rate measured by the Consumer Price Index (CPI) in May 2026 was 3.0 percent, up from 2.2 percent in May 2025.

This is the highest level in 29 months, since January 2024, when the indicator was 3.4%. In April, inflation had also jumped to 2.7%.

The three main factors that have influenced the price increase in May are:

1. The continued increase in rents (with an impact of 0.84 percentage points on inflation, or almost a third of the price increase), as a result of the fact that many accommodation units are rented out short-term to tourists, increasing long-term rents for locals. Tourists have also influenced the increase in the price of bars and restaurants (effect of 0.17 percentage points).

2. Food prices (impact 0.76 percentage points), reflecting the increase in the cost of raw materials, including energy, as well as the lack of domestic production.

3.Transportation (0.51 percentage points), directly affected by the war, as a result of fuel.

According to INSTAT, the annual price increase in May 2026 was mainly influenced by the group "Transport" with 7.8%, followed by "Insurance and financial services" with 4.9%, "Rent, water, electricity, gas and other fuels" and "Entertainment, sports and culture" with 4.2% each, Alcoholic beverages and tobacco" with 3.4%, "Restaurants and accommodation services" and "Personal care and various goods and services" with 3.0% each, "Furniture, household equipment and home maintenance" with 2.8%, "Food and non-alcoholic beverages" with 2.2%, "Educational services" with 2.1%, "Health" with 1.6%, "Information and communication" with 0.5%. On the other hand, prices in the group "Clothing and footwear" decreased by 0.5%.

The inflation level has reached the Bank of Albania's target of 3%.

The Governor of the Bank of Albania, Gent Sejko, emphasized in the last meeting with the IMF that the monetary policy pursued by the Bank of Albania remains committed to providing the Albanian economy with appropriate monetary conditions for returning inflation to target, following an approach conditioned by new information and addressing uncertainties over the performance of the economy.

The IMF also noted that inflation has been affected by rising energy prices, while inflationary expectations require continuous monitoring. The Bank of Albania's main objective is to guarantee stability and it does this through setting the base rate.

In periods when inflation is falling, the base rate is lowered and conversely, when the price trend is increasing, monetary policy moves towards tightening.

The base rate is currently 2.5%, down from 3.25% in 2024, when the bank intervened to curb the price increases that resulted from Russia's attacks on Ukraine.

The influence of the main groups on the annual change

According to INSTAT, the annual price increase in May was mainly influenced by the group "Rent, water, electricity, gas and other fuels" with +0.84 percentage points, followed by the group "Food and non-alcoholic beverages" with +0.76 percentage points.

Also, the prices of the "Transportation" group by +0.51 percentage points, the prices of the "Furniture, home appliances and home maintenance" group by +0.20 percentage points, the prices of the "Alcoholic beverages and tobacco" and "Restaurants and accommodation services" groups by +0.17 percentage points each, the prices of the "Personal care and various goods and services" group by +0.13 percentage points, the prices of the "Entertainment, sports and culture" group by +0.09 percentage points, the prices of the "Educational services" and "Insurance and financial services" groups by +0.07 percentage points each, the prices of the "Health" group by +0.05 percentage points, the prices of the "Information and communication" group by +0.02 percentage points and the prices of the "Clothing and footwear" group by -0.02 percentage points./ Monitor