Inflation rises to a near two-year high in May

Latest reading: Inflation climbed to 11.3% in May from April’s 10.7%, marking the highest rate since September 2023. The reading remained entrenched above the Central Bank’s medium-term target of 5.0%, likely fanned by a weakening tenge vis-à-vis the Russian ruble plus stubbornly high inflation in key trading partner Russia. According to the preliminary release, the acceleration was broad-based, with services and food costs gaining traction. As a result, the trend pointed up, with annual average inflation rising to 9.1% in May from 8.9% in April, the joint-highest reading in nine months. Finally, consumer prices rose 0.95% over the previous month in May, below April’s 1.18% increase.

Outlook: Price pressures should ease by December as the effect of past rate hikes permeates through the real economy; interest rates should remain at some of the highest levels in recent years in the coming quarters. Still, inflation should outpace 2024 levels in 2025 as a whole, outpacing both the Central Bank’s target and the pre-pandemic 10-year average of 7.3%. A myriad of factors should fan inflation this year, including VAT hikes, loose fiscal policy and utility reforms plus a sky-high inflation in key trading partner Russia and a weak tenge driving up imported inflation.

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