Consumer Inflation In August At Its Lowest Level For The Year In Kasakhstan

Consumer Inflation In August At Its Lowest Level For The Year In KasakhstanConsumer price inflation slowed to 0.2% mom in August 2016 (0.5% mom in July and 0.3% mom in August 2015), which is the lowest level for the year.
According to the Committee on statistics, consumer price inflation slowed to 0.2% mom in August 2016 (0.5% mom in July and 0.3% mom in August 2015), which is the lowest level for the year. 12-month rate of inflation also fell to 17.6% (17.7% in July), marking the beginning of a downward trend in annual inflation due to the shrinkage of base effect. In retrospect, high inflation, close to the current figures, was seen in August 2008, when it reached 20% yoy, but was fueled by the strong growth in prices for mineral and food raw materials, closing the cycle of world economy growth that began in the early noughties. In our assessment, the seasonally adjusted (hereinafter-sa) prices in August rose 0.5% mom sa after 1.0% mom sa in July.

Rise in food prices slightly slowed to 0.4% mom and 0.9% mom sa in August. The main drivers of growth were: cereals +3.1% mom, where in particular, the buckwheat rose by 4.2% mom, and by half since the beginning of the year, bread +1.3% mom, oils and fats +1.6% mom, sugar +2.9% mom and confectionery +0.9% mom. Traditional for this time of the year fall in prices was observed for vegetables and fruits that even with seasonal correction fell by more than 1% mom.

Non-food inflation came in at 0.9% mom and 0.7% mom sa in August, having increased significantly as compared with the previous month. The most significant increase was observed for printed products and stationery +3.4% mom, LPG +10.4% mom and diesel fuel that jumped by 14.5% mom after the government cancelled regulation of prices for this type of fuel at the end of the first decade of August. The main effect of a weakening tenge has already had pass-through on non-food items, as the most import dependent component of the consumer basket. Since last September, the growth here has exceeded 28%.

Services prices growth dropped significantly to 0.2% mom and 0.3% mom sa, mainly due to zero change of tariffs for utilities and communication services. On the opposite, the transport prices soared by 0.7% mom, air transportation +6.7% mom.

Our view

In anticipation of the completion of the annual cycle of consumer prices soaring started last September , when the tenge weakened from 188 to 340 per $1, we currently expect annual inflation to slow down to about 11% in October and at the upper band of NBKR target corridor of 8% by the end of the year. We continue to believe that the conditions for justified reduction of base rate from the current level of 13% in the run up to the end of the year have not yet formed by virtue of the variety of reasons. Deregulation of diesel prices could spark higher prices for the comparative fuels further up the chain with an impact on prices for agricultural products. Also, NBRK’s policy in relation to tenge/ruble exchange rate remains undisclosed (almost 8% easing since the beginning of the year of the real exchange rate and more than 10% in nominal terms). Further weakening of the tenge relative to the ruble can put pressure on inflation, given the high share of imports from Russia exceeding one third of the total. Furthermore, the increased volatility in the oil market, which arouse recently, poses additional macroeconomic and inflation risks.

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