Price barometer (July 2022)

Main conclusions

• Annual inflation continued to rise in July and amounted to 15%. The increase in consumer inflation occurred due to the rise in the cost of food and non-food products;
• There is a slight softening of inflation pressure against the background of a global decline in prices for the main food groups. The current situation in the world food and energy markets reduces the likelihood of another acceleration of global inflation;
• World food prices decreased significantly compared to recent months – by 8.6% to 140.9 points in July. However, food prices are still higher than the values of the same period last year – by 13.1%;
• The realization of most of the risks that were noted by the IMF in April 2022 led to an increase in global inflation forecasts for developing countries to 9.5% (+0.8 p.p. compared to the April forecast) and a decrease in global economic growth forecasts to 3.2% (-0.4 p.p.);
• We can see a slowdown in monthly inflation in all components compared to previous periods. However, the current level of monthly inflation in Kazakhstan (+1.1%) remains higher than in the same period of last years;
• High prices for consumer goods will have a restraining effect on the dynamics of consumer demand and shift its structure towards cheaper substitute goods;
• The food inflation level was 1.0% MoM (19.7% YoY). The slowdown in food inflation is provided by the disinflationary effect of the seasonal cheapening of vegetables and fruits, as well as a decrease in prices of agricultural producers against the background of the new harvest period coming;
• The ongoing geopolitical tensions and global monetary tightening, in conditions of high import dependence on domestic demand, have a pro-inflationary effect on the prices of non-food products through the exchange rate to domestic prices transfer effect;
• Despite the rise in the cost of energy sources in foreign markets, maintaining high growth rates of service inflation in terms of administrative restrictions creates space for imbalance accumulations. And this, in turn, may impact current expectations and future inflation;
• A cautious monetary policy tightening creates conditions while the base rate can’t keep pace with the actual level of inflation, which leads to a negative level of the real interest rate. As a result, monetary conditions continue to have a stimulating effect on demand growth;
• The continued annual inflation acceleration and the National Bank of the Republic of Kazakhstan’s opinion that the peak of inflation has not yet passed create prerequisites for another base rate increase. Otherwise, in addition to general economic factors, non-anchored inflation expectations will increase the overall inflation.

Risks and prospects

There is a slight softening of inflation pressure against the background of a global decline in prices for the main food groups. The current situation in the world food and energy markets reduces the likelihood of another wave  of global inflation acceleration.

The realization of most of the risks that were noted by the IMF in April 2022 led to an increase in global inflation forecasts for developing countries to 9.5% (+0.8 p.p. compared to the April forecast) and a decrease in global economic growth forecasts to 3.2% (-0.4 p.p.)

Sufficiently high domestic prices for consumer goods will have a restraining effect on the dynamics of consumer demand and shift its structure towards cheaper goods.

The ongoing geopolitical tensions and the global monetary tightening have a pro-inflationary impact on the prices of non-food products. This is due to the high import dependence on domestic demand and through the exchange rate to domestic prices transfer effect

Despite the rise in the cost of energy in foreign markets, maintaining high growth rates of service inflation under non-monetary measures of the state to control inflation creates space for the accumulation of imbalances that can impact the trajectory of future inflation.

The trajectory of the base rate increase has not yet kept pace with the inflation growth, which leads to periodic negative rates in the economy. Such monetary terms do not create significant prerequisites for reducing the inflation contribution from the demand and lending.