Inflation trends in the Armenian economy remain a key priority for monetary policy. Consumer price trends are shaped by several external and internal factors that reflect the complex interplay of supply, demand, and inflation expectations. Recent trends also indicate that, on the one hand, price fluctuations in foreign markets amid geopolitical uncertainty, and, on the other hand, shifts in domestic demand and exchange rate fluctuations, play a significant role in shaping the overall inflationary environment. 

Moderate inflation is generally viewed as a natural part of a healthy economic environment, reflecting some expansion in demand and economic activity. However, when it exceeds controlled levels or becomes unstable, it disrupts macroeconomic balance, reducing the population’s real purchasing power while increasing economic uncertainty, which, in turn, affects the decisions of both households and the business community.  

According to the latest data released by the Statistical Committee of the Republic of Armenia, inflation in Armenia continued to rise in the first quarter of 2026, reaching 4.5% in March compared to the same period last year. At the same time, prices rose by 0.7% compared to February, while the exchange rate of the Armenian dram against the U.S. dollar remained unchanged during the period under review, indicating that inflationary dynamics were formed without additional pressure from exchange rate fluctuations. The average exchange rate of the Armenian dram against the U.S. dollar was 377.4 AMD in March 2025, compared with 392.8 AMD during the same period in 2025. Under these conditions, and to ensure price and financial stability, the Central Bank of Armenia (CBA) continues to adhere to an inflation target of 3% over the medium term. 

Thus, looking at the dynamics of inflation by product group, we note that prices for food and non-alcoholic beverages rose by 7.8% in March 2026 compared to the same period last year and by 1.8% compared to February 2026. On an annual basis, the highest inflation among the main food categories in Armenia was recorded for dairy products, cheese and eggs – 12.8%, followed by tobacco products – 9.7%, meat – 9.4%, vodka – 9.2%, and the coffee, tea, and cocoa group – 7.7%. During the observation period, no deflation was observed in any of the major food product categories; however, relatively low inflation was recorded in some product groups, such as wine, at only 0.5%. At the same time, monthly price declines were observed in certain product categories, particularly in the wine and fish, seafood categories, by 0.8% and 0.5%,  respectively (compared to  February 2026). Overall inflationary pressure within the food product groups was most pronounced in the animal-based products categories.   

The above-mentioned inflationary dynamics are driven not only by domestic factors, primarily the presence of excess, high demand in the RA economy during the first quarter of 2026 (as indicated by the RA Central Bank’s forecasts), but also by external factors. In particular, food prices are rising on global markets: the Food and Agriculture Organization of the United Nations (FAO) Food Price Index shows an upward trend. In March, the index rose by 1% compared to the same month last year and by 2.4% compared to last month. Monthly, price indices for all commodity groups, such as grains, meat, dairy products, vegetable oil, and sugar, rose to varying degrees, reflecting not only fundamental market factors but also the impact of rising energy prices due to the escalation of the conflict in the Middle East. Thus, the inflationary trends observed in international commodity markets since the beginning of the year have also affected Armenia’s consumer market, particularly regarding the pricing of imported goods.  

On the other hand, the inflation pattern in Armenia’s non-food products market was the mildest in March 2026, with annual inflation amounting to just 0.8%, and monthly inflation to 0.1%. However, there are significant differences in inflation rates among product categories within this market: while jewelry recorded a substantial increase of 54.5%, the amateur gardening category experienced a decline of 12.8%. This indicates that price changes across different product groups within the same market are not uniform and are shaped by diverse underlying trends. 

According to published data, in March 2026, gasoline and diesel prices fell by 6.3% and 5.9%, respectively, compared to the same period in 2025. The downward trend observed since the beginning of the year may, to some extent, be attributed to changes in the structure of fuel imports and the restructuring/ diversification of supply sources, which have contributed to potential cost reductions in supply chains, including logistics costs. At the same time, liquid hydrocarbons such as butane, propane, and others showed the opposite trend, albeit a rather weak one, with an increase of just 0.2%. It is also significantly lower than the fluctuations recorded in previous months, which may indicate a relative balance between supply and demand in this sector.  

The annual inflation rate in the services sector, recorded at 2.6% in March 2026, rose more slowly than the overall inflation rate, indicating that inflationary pressures during this period were more pronounced in the goods market, particularly in the food sector. At the same time, the 0.2% monthly deflation indicates a certain decline in short-term price fluctuations in the services market, which may be due to price adjustments for certain services and market dynamics. Thus, when considering individual service sectors on an annual basis, a significant divergence is evident: numerous services are experiencing high inflation rates, including double-digit rates, with comprehensive leisure services (16.4%) and the transportation insurance sector (11.7%) standing out. High inflation was also recorded in the transportation sector (9.9%) and the medical support services sector (7.2%), while more moderate inflation was observed in the dental services subgroup (2.9%) and the hairdressing and personal care services subgroup (2.3%). The above-mentioned data indicate that, even amid relatively moderate inflation in the services sector, significant differences persist between individual sectors within the overall consumer market. These differences may be due to several factors, including the nature of demand. For some services, demand may be more elastic (consumers are sensitive to price changes and, depending on the situation, may reduce or increase their consumption), while for other services it may be more inelastic (for example, in the case of services that are indispensable or have limited substitutability, where price changes do not usually lead to a significant change in consumption). The observed differences may also reflect other sector-specific factors, including seasonal fluctuations and structural characteristics of the services. At the same time, sustained strong external demand, particularly in certain service sectors, such as tourism and finance, could generate additional demand and contribute to increased inflationary pressures in this market over the medium term. 

The above-mentioned trends once again prove that even in individual markets, pricing is determined by the combined influence of both internal and external factors. In this regard, it is particularly important to note that recent geopolitical tensions, particularly developments in the Middle East, have heightened global economic uncertainty, as reflected in changing inflation expectations and shifts in the overall inflationary environment across various countries. Therefore, in this context, it is important to take into account the specific features of pricing and potential trends in the development of the RA consumer market.  

On the one hand, high inflation for certain goods in the Republic of Armenia, and on the other hand, current geopolitical developments continue to make the inflation outlook uncertain. However, it should be noted that the Central Bank of Armenia has conducted a preliminary assessment, outlining 3 possible main scenarios for the impact on domestic prices in the event of a sharp escalation of the situation in the Middle East and its prolonged continuation. Thus, the direct impact of rising commodity prices and, above all, oil prices on the international market is estimated at approximately 0.6% - 0.8% on the 12-month headline inflation rate in the Republic of Armenia. On the other hand, Iran is an important transit route to Armenia in terms of trade flows. Approximately 30-40% of Armenia’s merchandise trade is with countries in the Middle East and a number of Asian countries, for which this route is often the shortest and most cost-effective option. Specifically, among the countries mentioned, China (12.3%) ranks second among Armenia’s largest trading partners in terms of trade volume, the United Arab Emirates (10%) ranks third, Iran (3.6%) fourth and Iraq (1.6%) seventh, according to annual data for 2025. At the same time, among these countries, India also plays an important role in Armenia’s foreign trade relations as a significant partner in its own right, whose share, though relatively small,  is on the rise. It is also worth noting that Armenia’s foreign trade relations are formed mainly through Georgia and, to a lesser extent, through Iran, a situation dictated by the country’s geographical characteristics. In particular, the closed borders with Turkey and Azerbaijan, as well as the lack of access to the sea, significantly limit access to foreign markets. As a result, transportation costs for Armenia are relatively high, and delivery times are often unpredictable, for example, due to periodic disruptions at the Upper Lars checkpoint. Under these circumstances, the Iranian market takes on critical importance, ensuring relative stability in ties with foreign markets and the continuity of supply chains. Therefore, according to current estimates by the Central Bank of the Republic of Armenia, in terms of logistical changes, the inflationary impact of imports via an alternative route (for example, using the Port of Poti in Georgia instead of Iranian ports) is estimated to be an additional 0.5% - 0.8%. Iran also accounts for a significant share of Armenia’s imports, which in recent years has been around 7-8%, with a substantial portion consisting of natural gas supplied under the power transmission agreement. However, the main goods imported from Iran that make up the consumer basket are primarily agricultural products (fruits and vegetables), household goods and consumer goods. However, the import markets for these goods are fairly diversified, and according to CBA estimates, a shift in import sources would have a modest impact on inflation, amounting to about 0.1%. According to the Central Bank’s estimates, the impact of the three main channels mentioned above on overall inflation in the Republic of Armenia will amount to an additional 1.2-1.7 percentage points. Meanwhile, developments in Armenia’s key partner countries are also significant, particularly given Russia’s dominant role in Armenia’s import structure, which, in turn, increases the inflationary risks transmitted from the Russian economy. Especially since, according to the Central Bank of the Russian Federation, inflation rates in the country remain relatively high, with annual inflation of 5.9% in March 2026.  

Overall, the development of inflationary conditions in the Republic of Armenia during the period under review was characterized by multifaceted and uneven trends. The rise in inflation is mainly driven by higher prices for certain categories of goods, particularly in the food market, while price trends in the non-food market and the services sector remain relatively moderate. In this context, future inflation trends will be determined to a large extent by both domestic demand dynamics and uncertainties stemming from the external environment, underscoring the need for ongoing assessment and consistent macroeconomic policies to ensure that the inflation target (3%) is met in the medium term.