The M3 Monetary Measure indicator grew at a very rapid pace during the second half of 2025 as well as in the first two months of this year, signaling the risk of high inflation. But inflation, at least as far as the Consumer Price Index measured by INSTAT is concerned, does not yet appear at worrying levels. The Bank of Albania's data on the country's monetary indicators as well as the Institute of Statistics' data on the performance of consumer goods prices thus fall into an inexplicable contradiction with the main economic theory, which has guided economic policies around the globe for almost six decades.

Double against economic growth

According to data from the Bank of Albania, the M3 Monetary Measure increased in annual terms by 10.2% in December 2025. In the same period, the Consumer Price Index increased by 2.2% while the Gross Domestic Product, in nominal terms, according to data from the Ministry of Finance, increased by 4.95%. In the monetarist theory, developed five decades ago by Milton Friedman, an increase in the monetary measure at the level of 10%, against economic growth of 5%, would have caused an increase in inflation. This, as far as official statistics are concerned, turns out to be a wrong theory. While money in circulation increases at twice the rate of economic growth, this additional money in circulation, according to INSTAT, does not cause inflation.

Asset inflation or the economy of the rich
Citizens and some politicians are complaining these days about the price of tomatoes and other prices of essential goods. Their complaints seem to be unfounded, if we see that the inflation of goods measured by INSTAT does not provide any data to cause alarm. According to INSTAT data, the average inflation during the past year was 2.2%. The inflation of vegetables, about which the biggest complaints are heard, is officially 2.5%. This means that either INSTAT has measured the inflation of vegetables incorrectly, or the complaints are unfounded.

INSTAT's reputation as a professional institution is not strong. Like any institution under the current government, the image of the institution in question is damaged by the practice of total partisanship of the state and the use of state employment to collect votes. But the fact is that, no matter how much one might guess, there is no alternative to INSTAT. There is no other institution capable of making an alternative measurement of inflation.

The anomaly remains unresolved in this regard. Albania is a country where money in circulation has grown much faster than the economy and this has not caused, as any economist would expect, inflation.

The M3 Monetary Measure is the statistical indicator that summarizes all money in circulation, including physical money in coins and banknotes that every citizen carries in his pocket, money in bank deposits in lek or in other currencies, as well as money held in debt securities, whether of the government or of private corporations. According to BoS data, M3 in December 2025 was approximately 1.97 trillion lek or about 20 billion euros. Compared to December 2024, M3 has increased by 137 billion lek or 10.2%. During the same period, Gross Domestic Product, or the amount of added value that the work of every Albanian has created, reached 2.64 trillion lek, with an annual growth of less than 5%.

Money in the national economy is something different from money in the lives of citizens. In the national economy it is a tool, which is produced almost at no cost by the central bank and made available to the economy. While in the lives of citizens money is the difference between being rich and being poor. The amount of money produced by the authority that issues the currency depends on the size of the economy. The BoS cannot produce money to make all citizens rich because, in this case, money would simply become a worthless paper. Consequently, when the economy grows by 5% in nominal terms, the money supply, that is, the money that serves this economy, can grow by the same amount.

There is actually an explanation for this anomaly, and that explanation is asset inflation and the economy of the rich. But before we get there, we should note another anomaly, also very strong, that the economy has exhibited during 2025.

Deposits grow faster than GDP

During 2025, deposits of citizens and businesses in second-tier banks in Albania reached approximately 1.9 trillion lek. The increase compared to 2024 was 8.5% or 148 billion lek. In addition to the fact that the growth of deposits is greater than the growth of Gross Domestic Product in nominal value, meaning that a significant part of the growth of deposits has come from outside the formal economy, the fact is that several medium-sized banks are the main beneficiaries of the growth of deposits. FIBank, ABI Bank and Tirana Bank lead the market in terms of deposit growth. These banks have seen an increase in deposits of 20, 17 and 18% in annual terms. While banks traditionally known for serving the general population, such as IntesaSanpalolo, Raiffeisen or BKT, are all limited to increasing deposits at a pace of 4, 5 or 7 percent.

The fact that deposits of banks with a relatively limited number of customers have grown at a high rate, while those with a large number of customers have grown at a normal rate, suggests that the additional deposits belong to a small number of customers. And if this is the case, (Albania does not collect and analyze data to measure issues such as inequality so we can only guess on data reported for other purposes), then the addition of deposits and the addition of the M3 money supply, should not cause inflation in the Consumer Price Index, because this addition does not belong to the wider population. This may also explain why the prices of assets, which are not measured by INSTAT, such as real estate, have been rising at a much faster rate than economic growth for many years now.

However, it is likely that channeling the extra money into real estate and inflating the prices of these assets is only an indirect route before the extra money is passed on to general inflation.

The growth of the M3 money supply over the past year coincides to a large extent with the currency purchase schedule of the Bank of Albania to avoid the strengthening of the lek. The Bank of Albania bought 729 million euros in the market “to curb the strengthening of the lek” during 2025, but 435 million of these were purchased in July and August. Consequently, the pace of M3 growth jumped from 6-7% in the first half of the year to over 10% in the following months.

Apparently, a large amount of money entering the Albanian economy through channels not specifically identified and which many suspect come from the criminal activities of Albanians abroad, is entering the economy, is entering by force and is causing inflation. First, asset inflation and then, inflation of consumer goods. It is not difficult to distinguish a not very indirect connection between drug money and the price of tomatoes./Reporter.al