Price barometer (February 2023)

Monthly inflation overview: causes, elements, forecasts

Risks and prospects

Global inflation remains high, although it has probably already passed its peak in most developed countries. The IMF experts expect that the inflationary environment will improve in 2023, even if core inflation, which does not include more volatile energy and food prices, has not yet peaked in many countries. At the same time, a geopolitical turbulence factor causes risks of a long period of increased inflation.

Following our baseline scenario, the internal inflationary pressure will weaken in 1 year but will remain significantly above the NBK target. This is due to several factors. The long-term maintenance by the regulator of restraining monetary conditions is already showing its effect on weakening consumer demand, slowing price growth and reducing inflation expectations of economic agents. And the increase in wages at the beginning of the year, the indexation of pensions and benefits, and the next fiscal impulse restrain the decline in real incomes as well as all of these complicate the possibilities of managing inflationary risks.

An additional stabilizing contribution is made by the exchange rate dynamics of the tenge, which allows it to restrain the risk-taking of inflation growth through the cost of imported goods and limits the possible increase in the volatility of inflation expectations.

The expansion of fiscal stimulus due to the revision of the transfer volume from the National Fund, which contributes to the consumer demand expansion, has caused a change in our estimates of the prospects for economic growth. Thus, the updated forecasts assume a GDP growth of 4.0-4.5% in 2023 and a 3.1% of the output gap. Inflation will enter a downward trajectory and will be at a 12.4–14.3% level by the end of the year. And monetary conditions as a whole will remain close to neutral.

The observed degree of heterogeneity of the response of inflationary processes in response to monetary policy shocks, unstable inflationary expectations and high pro-inflationary risks determine our expectations for a further smooth reduction of the NBK base rate.

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