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We face a variety of expenses that vary depending on our needs, circumstances and preferences in our daily lives. Some people need quality food, others need to repay loans regularly and for some entertainment and recreation become a priority. However, the question often arises: Do we have enough income to meet all these needs? What amount of money is needed to achieve a comfortable standard of living? Is it possible to classify yourself as middle class by your expenses? 

In this regard, we decided to analyze the core expenditures that each person or family needs to achieve a minimum level of comfort and meet basic life needs. As a result of the study, we divided the employees of Astana and Almaty cities into 6 groups depending on their income and expenses and also determined the size of each class: the least well-off, low-income, lower middle class, middle class, prosperous and well-off. 

Key insights:

• An average of 246.3 thousand tenge or 60% of salary is spent on core expenditures every month.
• The largest amount of daily expenses is observed in the first 4 days after receiving a wage.
• At least 450 thousand tenge per month is required to satisfy all basic needs for a comfortable life in megapolicies.
• Almost half of the employed in Astana and Almaty cities (49%) do not have enough earnings to cover their daily expenses.
• The is an essential disparity between workers and cities - there are 4 times more workers with financial difficulties in Almaty than in the capital.
• Only 4.4% of employees with wages from 700 thousand to 1.2 million tenge, whose daily expenses account for 40-50% of income, can be attributed to the middle class.
• Employees with above-average incomes make up the smallest share of the employed population - 2%. 

According to RMCI dynamics, there is a further monetary ridigity strengthening in May 2023. The Index components have an undirectional effect on prices, while the main contribution to the monetary conditions tightening is made by the exchange rate component. And both RMCI Index components began to deviate more strongly from their equilibrium value following May 2023 results.

Despite the increasing transition of the real interest rate to the zone of positive values, provided by the weakening of price pressure while maintaining the NBK base rate at 16.75%, it has a weak deterrent effect on household consumption behaviour. 

Firstly, the household decisions to save or spend come from their inflation expectations, which by the end of May 2023 were higher than the actual dynamics of price growth (17 vs. 15.9) and reflect the intuitive expectations of economic agents of further inflation growth due to the influence of price conjuncture in the housing and fuel markets. Secondly, the availability of consumer credit, as well as active fiscal leverage increases incentives to keep consumer demand excessive, which continues to create an imbalance in market forces.

The continued expansion of the positive gap in the real effective exchange rate of tenge that was provided by a high base rate leads to an increase in the restraining effect of monetary conditions on the import component of prices. Thus, the main influence of monetary conditions is mostly expressed in the control of the external component of consumer inflation. While measures aimed at limiting domestic price pressure do not work due to the inconsistency of macroeconomic policy measures and the weakness of the percentage channel of the monetary policy transmission mechanism.  
 

Monetary conditions tightened somewhat and became more disinflationary in December 2022. This happened while simultaneously REER forming at a level above its potential and reducing the negative gap in the real interest rate. The value of the RMC Index is in the zone of restraining monetary conditions and close to the neutral zone border.

The REER value for the period under review remained at the level of November 2022, which was facilitated by the continued favourable terms of trade. The trend of the REER strengthening observed in the last 5 months of 2022 should limit the price competitiveness of Kazakhstan producers in foreign markets. However, the periodic shortage in certain commodity markets due to geopolitical tensions reduces the possible negative effect on Kazakhstan’s export revenue. A slight reduction of the positive gap in the exchange rate component is a positive trend since this fact corresponds to a gradual correction of the REER value from its significant overestimation to a more fundamentally determined equilibrium value.

At the same time, the interest component gap was closer to 0, and the real interest rate was less negative. This is due to the base rate increase of 75 bps in early December and, contrary to the shock measures taken by the regulator in November 2022, a deterioration in inflation expectations, as well as an increasing excess of tenge liquidity by fiscal measures to support economic activity.

In November 2022, the monetary conditions continued to slightly tighten. This was due to the REER formation at a level above its potential with the continued strengthening of the real effective exchange rate of tenge, as well as the reduction of the negative gap in the real interest rate. 

The RMCI value has moved into the zone of restraining monetary conditions for the first time since May 2022. Taking into account the NBK's latest rhetoric on a clear intention to complete the cycle of rate hikes, the impact of the interest component in the short term (until inflation moves into a downward trend) will have an effect close to neutral. As inflation declines, as well as if the positive gap in the REER remains, monetary conditions will be restraining closer to neutral, so as not to suppress business activity and cool the increased inflationary background. 

The components of the Monetary Conditions Index continue to have conflicting effects on inflationary processes and economic prospects. The exchange rate component restricts them, while interest rates have a more stimulating effect on business activity growth and weakly limit consumer and investment demand. 

The dynamics of Monetary Conditions Index (RMCI) signal a change in the parameters of monetary conditions in the domestic economy. In October, monetary conditions became tougher compared to the previous 3 months and the Index value corresponds to the transition from stimulating to neutral monetary conditions.

The components of the Monetary Conditions Index have a multidirectional effect on inflationary processes and economic prospects. Thus, the interest rate component has a stimulating effect on business activity growth, and on the contrary, the exchange rate component causes harsh conditions that restrain aggregate demand and slow economic growth and inflation.

According to October data, interest rates were not high enough to limit consumer and investment plans of economic units. And as a result, the stimulating pressure on economic growth and inflation has increased relative to the previous period in terms of the real interest rate.

According to the results of September, the dynamics of the Real Monetary Conditions Index1 (RMCI) still correspond to the stimulating conditions, but its value came close to the neutral zone. Neutral conditions eliminate the stimulating effect on the short-term growth of several sectors of the economy, allowing further changes to reflect the real balance of factors to a greater extent.

The shift of monetary conditions closer to neutral ones was ensured by a positive gap in the real effective exchange rate of tenge. In general, the deviation of the REOC from the equilibrium value is insignificant, and this indicates its compliance with the fundamental level.

According to the results of August 2022, the dynamics of the Real Monetary Conditions Index (RMCI) signal the preservation of stimulating conditions in the economy, contributing to the growth of aggregate demand and business activity.

This, for the most part, is facilitated by an even greater transition of the real interest rate to the negative zone (-2.26% at the end of August against -1.91% in July). There was a reduction in the previously observed record negative gap by more than 3 times by the real effective exchange rate of the tenge in August, this is due to the tenge strengthening against the ruble and the euro in nominal terms, as well as an increase in the inflation rate in the European Union. At the same time, the current gap in the real effective exchange rate of tenge still has a stimulating effect on trade activity in the country.

If in the previous 10 years the consumer market lived up to the "baby boomers" born before Kazakhstan gained independence, then in the next 10 years it would have to be kept up to the "digital generation", which does not know the world without a smartphone. Every citizen of Kazakhstan has on average started to consume 20% more goods and services over the past 5 years. The domestic market has increased by more than $24 billion under the influence of economic and demographic factors.

All in a breath, large-scale structural changes are taking place in the consumer market:

• they began to use cash less, replacing them with mobile transfers, card payments and contactless;
• we can make purchases without leaving home, and if there is not enough money, then with a few clicks get a loan;
• we order food delivery from our favourite restaurant, call a taxi, find specialists for repairs and housework via mobile applications;
• listen to music, buy movies and video games, take educational courses and get medical advice online.

The year 2020 – the COVID-19 pandemic and social distancing influenced these processes, significantly accelerating the “digitalization of consumption”.

The speed of the changes taking place and the different propensity to adapt to them of different age groups form their own, familiar and preferred ways and methods of consumption for each generation of Kazakhstan citizens. At the same time, the intergenerational gap is growing, which will significantly impact the structure of the domestic market in the next 5, 10, and 15 years.

We have considered the following in this study:

1. How did the “baby boomers” generation affect the scale of consumption?
2. What will change in the consumer market with the increasing influence of the “digital generation” of Kazakhstan citizens?