Inflation started the New Year by entering the new corridor of 5-7%

Assan KurmanbekovFebruary 05, 2018

The consumer price inflation in January 2018 showed a weakening for the third month in a row by 0.6% mom, to 6.8% yoy, the level of average annual inflation marginally fell to 7.3%. 

According to the Committee on statistics, the consumer price inflation in January 2018 showed a weakening for the third month in a row by 0.6% mom, to 6.8% yoy, the level of average annual inflation marginally fell to 7.3%. By our assessment, the seasonally-adjusted (hereinafter-SC) prices in January rose by 0.3% mom, compared with 0.1% mom in the previous month.

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Food prices in January rose by 0.6% mom 0.4% mom sa. The prices decreased for cereals by 2.3% mom, for sugar by 3.1% mom, bakery products and beverages slightly cheapened. For the rest of the food items there was moderate price increases: eggs +1.4% mom, dairy products +0.7% mom, meat +0.1 mom, fruits and vegetables +2.8% m/m, confectionery +0.3% mom.

Prices of non-food items in January rose by 0.3% mom and -0.1% mom sa. Prices rose: clothing +0.3% mom, shoes +0.4% mom, fabric +0.4% mom medicine +0.8% mom. 

In services in January, the increase was 0.8% mom and 0.3% mom sa. Housing services +0.9% mom, central heating +1.9% mom, electricity +0.7% mom, health service +1% mom, transport services +0.5% mom.

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Results from the population surveys for December, published by the NBRK showed an inflationary expectations weakening. The percentage of respondents, expecting accelerating price growth in the next 12 months for the first time since February 2017 showed a decrease to 20.3% in December after a 21.3% in November 2017. The proportion of respondents awaiting either continuous reduction or stable prices had not changed from the level of 6.7% (15.5% in February 2017.). Half of the respondents (53.2%) still await tenge depreciation, however it is below the peak 63.4% in September 2017.

Our opinion

The exchange rate of tenge to US dollar in the first month of this year rose by 2% to 327 (average for January) and almost 4% from peak in autumn. The national currency gained from positive price changes in the oil market and the stability of the ruble.

In 2018, inflation in our view, will continue its slowdown to a level of 6.5%, which would be facilitated by the likely strengthening of tenge at the beginning of the year, the stabilization of fuel prices due to the increase of oil refining, weak demand, due to falling real incomes, the planned reduction of expenditures relative to GDP.

Higher tariffs would exert some pressure on prices, but their impact on inflation will not be decisive. The main risk for inflation pose the oil prices, which affect the exchange rate and inflation expectations.

An inflation started the New Year by entering the new NBRK corridor of 5-7% for the current year, and the change in the direction of inflation expectations toward positive side creates a good background for further gradual easing of monetary policy.