Kazakhstan: Inflation falls to new multi-year low
September 2, 2015
Consumer prices in Kazakhstan increased 0.3% over the previous month in August, which marked a six-month high and came in above the 0.1% rise observed in the previous month. The monthly increase reflected higher prices for clothing and footwear, housing, furnishing, as well as for recreation and leisure. Food prices continued to decline, although at a slower pace.
Despite the monthly increase, inflation decreased to 3.8% in August (July: +3.9% year-on-year) and marked the lowest rate in over 16 years. Inflation has fallen uninterruptedly since January and inflation pressures are likely to remain contained, despite the recent devaluation in the Kazakhstani tenge. On 20 August, the National Bank of Kazakhstan (NBK) allowed the tenge to free float as it rapidly approached the upper band of its trading corridor of between 170 to 198 KZT per USD. The NBK abandoned the currency band and switched to a free-floating exchange rate regime in order to pursue an inflation-targeting monetary policy. Under the new regime, the Central bank established an inflation target corridor of between 6.0% and 8.0% for the medium term.
The NBK expects inflation to increase in the short term, mainly due higher prices from imported goods as a result of the devaluation of the national currency. However, the Bank sees inflation converging on its target in the medium term.
Author: Ricardo Aceves, Senior Economist