Price barometer (June 2022)

Main conclusions

• According to official data, annual inflation continued to accelerate in June and amounted to 14.5%. Despite government measures to curb prices, the growth was provided by the appreciation of all CPI components;
• Inflation expectations of the population became more pessimistic in June. According to the National Bank of the Republic of Kazakhstan, the estimate of inflation expectations for the year ahead was 14.8% (in May – 11.7%);
• The current situation creates risks for exceeding the Natiinal Bank of the Republic of Kazakhstan forecast range (13.0-15.0%) and maintaining consumer prices at a high level for a longer period of time than it was expected;
• Despite the observed short-term decline in prices on world markets, external factors are still able to exert additional pro-inflationary pressure;
• Contrary to expectations due to the impact of seasonal decline in prices for vegetables and fruits, prices for all products in the grocery basket are rising. Sugar and grain prices had a significant impact on the growth of the food basket;
• Disruptions of global supply chains, weakening of tenge are reflected in the acceleration of price growth of non-food products;
• The rise in the market  services cost is associated with the growth of consumer demand and the influence of the summer vacation period. The increase related to last year is also due to a number of quarantine restrictions in the summer of 2021;
• In order to cool the growing inflationary pressure and maintain the investment attractiveness of the national currency, the National Bank of the Republic of Kazakhstan should continue a smooth increase of the base rate;
• There are some prerequisites for realization of tightening monetary coniditions potential under the current conditions, which the National Bank of the Republic of Kazakhstan has announced in its decision on the base rate at the end of April this year.

Risks and prospects

• The long-running geopolitical conflict combined with sanctions against Russia, cause problems with supply chains. This in turn leads to an increase in the cost of production and logistics of goods and services;
• The weakening of the tenge due to the growth of the dollar index against the background of tightening monetary conditions by the leading economies of the world will become a factor in the further appreciation of goods and services included in the CPI basket;
• Internal inflationary processes, including due to fiscal incentives provided despite the missing signals of a decline/slowdown in economic activity within the country, continue to increase;
• Despite the current administrative measures to curb price growth, inflation expectations of the population are only getting stronger. People understand that the measures are only temporary;
• According to the Announcement of the Head of the Committee for Regulation of Natural Monopolies in early July, residents of the country should have expected an increase in electricity tariffs in the range of 10-15% by the end of this year. The increase in utility prices after the expiration of the moratorium will have a direct impact on service inflation and indirectly contribute to the rise in the cost of manufactured goods and services.

In our opinion, there are no obvious prerequisites for weakening the dominant pro-inflationary background in the domestic and foreign markets in the near future. In the current conditions, we are expecting the further acceleration of inflation and its level above the forecast values presented in June 2022 by the National Bank of Kazakhstan. The above factors and risks create prerequisites for realizing the potential for the further tightening of monetary conditions, which the National Bank of the Republic of Kazakhstan has reported in the decision on the base rate at the end of April this year.