Inflation in Kazakhstan amounted to 16.8% in April 2023 compared with April 2022. During the month, the overall price level in the country increased by 0.9%. According to the Bureau of National Statistics of the Agency for Strategic Planning and Reforms of the Republic of Kazakhstan, prices for food products increased by 17.9%, for non–food products - by 18.2%, and for paid services – by 13.7% in annual terms. The decrease in inflation might be described mainly due to the high base of last year (inflation was 2% (MoM) in April 2022). In the Kazakhstan Macroeconomic Overview issued in April, AERC estimated April annual inflation at 16.80%, which coincided with the actual data.
The AERC revised the inflation estimate for May towards a slight decrease. The AERC forecasts the inflation rate in May at 16.23% (YoY) or 0.9% (MoM) against 16.50%, 1.1% respectively in the previous overview. The lower estimate is due to a sharp decrease in food inflation from 26.2% (YoY) in February to 17.9% (YoY) in April. We should also still take into account the high base of last year: inflation in Kazakhstan was 1.4%(MoM) in May 2022.
Taking into account the actual inflation data for April and the revaluation of inflation for May, the AERC forecasts inflation at the level of 15.22% (YoY) or 0.7% (MoM) for June. The current annual inflation forecast for June is slightly lower than the previous forecast (prev. - 15.49% (YoY)).
Taking into account the inflation forecasts for May and June 2023, the AERC anticipates inflation to be 14.98% (YoY) or 0.9% (MoM) in July.
1. Annual inflation in Russia slowed to 1.56% in April, down from 3.51% in March and 7.48 percentage points lower than in February. A sharp decline in inflation in Russia, the main importer of Kazakhstan, is a favourable factor for the reduction of inflation in Kazakhstan.
2. The average value of the FAO index increased in April and amounted to 127.2 points, which is 0.6% higher than the March indicator. This is the first increase in food prices after a year-long decline. A key factor in the increasing of the FFPI value in April was a significant rise in sugar prices. The price indices for cereals and dairy products continued to fall. This increase in the FAO index may indicate the instability of the disinflationary process in the world.
3. Annual inflation in the EU rose to 7% in April, compared with 6.9% in March, which was the first increase after five consecutive monthly declines. The increase in inflation in the EU, one of Kazakhstan’s key trading partners, may signal the instability of the decline in inflation in the world’s developed economies.
4. The opening of the Chinese economy has not justified the hopes for the high demand for oil. As a result, oil prices have fallen to $75/bbl. The voluntary reduction in oil production by the OPEC+ countries, including reduction in production by Kazakhstan by 78 thousand barrels per day, did not have a long-term effect on the rise in oil prices. This factor, which puts pressure on the exchange rate of the national currency, can become a pro-inflationary factor.
Annual inflation in Kazakhstan continues to slow down in March-April of this year. However, the dynamics of external and internal factors suggest that this disinflationary trend may be unstable. The decline in annual inflation in Kazakhstan is mainly due to the effect of a high base, while monthly inflation continues to grow at a high rate. Thus, in April 2023, monthly inflation was 0.9%, while in 2018 and 2019 it was 0.4% and 0.5% (MoM), respectively. The dynamics of prices of socially significant goods in the first decade of May continued to demonstrate an annual increase in prices for most of the nomenclature, which also does not allow us to conclude on the stability of the disinflationary trend in Kazakhstan. In this context, the AERC forecasts that monthly inflation will accelerate again to 0.9% after the projected slowdown in June.
In conclusion, the AERC assumes that a tight monetary policy is the basis for keeping inflation under control.
1. In the recent Kazakhstan Macroeconomic Overview, the AERC forecasted the growth of the nominal monetary income of the population at the level of 20.6% (YoY). Since the beginning of the year, this indicator has been growing rapidly. In February of this year, the growth of nominal cash income was 17.4% (YoY). The growth of the monetary income of the population is a pro-inflationary factor for the forecast period.
2. After declining in January and February, the growth rate of the M3 monetary aggregate (money supply) increased by 2.8% (MoM) in March. This may led to renewed inflationary pressures in the economy of Kazakhstan.
3. In May, the National Bank plans to sell currency from the National Fund in the amount of $750 to $800 million. In April, the National Bank sold $600 million from the National Fund. This measure supports the USD/KZT pair and exerts disinflationary pressure by strengthening the national currency against the US dollar.
