Inflation has weakened moderately in November, but the potential for its acceleration is still there

Assan KurmanbekovDecember 05, 2017

The consumer price inflation in November after a sharp rise in October eased to 0.9% mom and 7.3% yoy, 6.3% since the beginning of the year.

According to the Committee on statistics, consumer price inflation in November after a sharp rise in October eased to 0.9% mom and 7.3% yoy, 6.3% since the beginning of the year, the level of average annual inflation marginally fell to 7.6%. In our assessment, the seasonally-adjusted (hereinafter-sa) prices in October increased by 0.5% mom, compared with 0.6% mom in the previous month.

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Food prices in November rose by 0.8% mom 0.2% mom sa, +5.3% since the beginning of the year. The prices for agricultural products declined for cereals and selected vegetables. The other food staples saw significant price increases: eggs +6.2% mom, dairy products +0.9% mom, +0.8 meat, mom, fruits and vegetables +2.4% m/m, confectionery +0.7% mom. 

Non-food inflation in November showed an acceleration to 0.8% mom and 0.5% mom sa, +8.4% since the beginning of the year. Prices rose for: clothing +0.5% mom, shoes +0.7% mom, diesel +9.4% mom, petrol +1.5%, +0.5% for medications.

In the services sector in November an increase in tariffs was immediately at 1% mom and 1% mom sa, +5.6% since the beginning of the year. Increased prices for housing services +1.8% mom, hot water +11% mom, central heating +2.2% mom, health services +0.6% mom, restaurants and hotels +0.4% mom.

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Our opinion

After the rise in prices of 1.2% in October, inflation shows slowdown to 0.9% in November. Exchange rate of tenge to US dollar in November rose by 1.5% to 332.5 (monthly average) compared to the previous month, and corresponds to the average in the third quarter.

The pace of inflation deceleration looks pretty sharp given the continued rise in the prices of motor fuel and persistent inflationary expectations and may be due to administrative measures on the part of State authorities to limit rising prices. In addition, there was a drop of retail trade turnover in September and October, it is possible that the trade slumped in November too.

We adhere to our inflation forecast of 7.5-8% at the end of this year. In December, on the eve of New Year a spike in consumer activity is likely, that can support the growth of prices. Rising prices for raw materials, in particular, for fuel also has a serious potential to cause a rise in tariffs of State monopolies. The decision to maintain the level of the base rate in November at $10.25%, in our view, is quite adequate. The process of achieving the objectives on inflation takes a long period of time and it is logical that the NBRK adheres to a consistent approach in this matter, although the monetary policy is still not transparent and carries risks in the form of a negative impact on the inflation expectations.