Price barometer (November 2022)

Monthly inflation overview: causes, elements, forecasts

Risks and prospects

The current macroeconomic situation assumes the prolongation of large-scale inflationary pressure and more pronounced manifestations of recessionary processes until the end of 2023. In general, there are more pro-inflationary risks and they are more significant than disinflationary ones.
Rationing measures such as tightening monetary conditions in response to price hikes harm global economic activity. The actions of the monetary regulators of the world create conditions for the emergence of disinflationary influence from aggregate demand. However, the presence of supply-side problems commensurate with the weakening of demand compensates/reduces the effect of the anti-inflationary measures taken. At the same time, the increasing restrictions on consumer demand are destabilizing and compressing business activity.
It is obvious that now the actions restraining demand alone are not enough to stabilize the situation with prices, as it was before. It is necessary to solve the problems of limited supply, which have been ignored for a long time. Macroeconomic stabilization measures should be more focused on supply-side economics.
We note a shift in the balance of risks in the Chinese economy. If the new trend of gradual digression from the “zero tolerance” policy continues and there are no new large-scale outbreaks of coronavirus, then China’s economy may resume its previous activity and improve the prospects for aggregate supply in the world. At the same time, the recovery of China’s business activity may result in a huge volume of deferred demand and cause another wave of price growth.
Thus, the increased global inflationary background contributes to maintaining negative pressure on consumer prices in Kazakhstan.
The growth of oil revenues is still supported by the favourable price environment in oil markets. And this, in the context of declining forecasts for the prospects of the domestic economy, looks like it will contribute to maintaining an increased level of anti-crisis support. The growth of government spending, as opposed to monetary constraints on demand, also partly acts as a measure to stimulate it to ensure positive economic growth. The solution to this structural problem of Kazakhstan, which carries with it the threat of even more out-of-control inflation, measures to calibrate public policy.
There are no factors that could significantly help with the stabilization of the price situation in the medium term. Creating conditions for solving the problems of the discrepancy between supply and demand in the domestic market will take more time.
Therefore, we do not expect inflation to return to the target zone in a year. Following this year’s results, we forecast inflation to reach 21%, and its slowdown to 12.5-13.5% in 2023, which will be mostly due to the technical effect of the high base of the current year.