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Commodity market imbalances, inflation and falling oil prices

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by September 14, 2021 General

Chairman of the National Bank Yerbolat Dossayev reported on the state of Kazakhstan’s external financial and commodity markets and the domestic economy in August at a government meeting today. According to him, from April to August this year, annual inflation reached 7.0% to 8.7%. More in the material of the correspondent of Strategy2050.kz.

Commodity market imbalance

Chairman of the National Bank Yerbolat Dossayev noted that in August this year the situation in foreign financial and commodity markets, as well as in the domestic economy is stable. According to him, inflation in the world continues to grow amid imbalances in consumer markets. He also noted that the increase in demand for goods in the context of high business activity in the world has exceeded the supply opportunities that affect the growth of prices. As a result, he noted that inflationary processes are accelerating in developed and developing countries in the context of ongoing imbalances in consumer markets.

“Imbalances in food markets have the biggest impact. After a two-month slowdown in August this year, world food prices continued to rise again, “the chairman of the National Bank said.

According to him, the Food and Agriculture Organization of the United Nations (FAO) noted that the food price index

increased by 32.9% year on year to 127.4%. For example, this was due to a significant increase in prices for sugar, vegetable oils and cereals. He also said that the world price index for cereals rose to 129.8 due to the deterioration of grain crops, the world price index for vegetable oils to 165.7% due to reduced supply and growth in demand, the world price index for sugar drought in Brazil. As a result, since February 2017, the maximum price has risen to 120.1%.

“Current imbalances in food markets have a negative impact on inflation in the world, respectively, in Kazakhstan,” he said.

According to him, the rise in producer prices against the background of rapid growth in demand will have a negative impact on the cost of the final product. Manufacturers around the world have reported problems with supply and high prices for raw materials and finished products. He also said that in the face of significant growth in demand, producers have faced shortages of key components and rising prices for raw materials, forcing them to compete with each other for the ability to transport products.

“This has led to a record rise in freight rates, as well as rising export prices. The cost of shipping the container increased 3.4 times compared to December 2019. This means that prices will rise in the future, “Yerbolat Dossayev said.

Supply and raw material prices

According to him, due to the high supply and prices for raw materials in Kazakhstan, the annual increase in producer prices in July this year reached 14.2%. Recovery of the economy in the country against the background of growing demand for finished products, the load of industrial energy sources leads to an increase in production. In this regard, the demand of real sector enterprises conducted by the National Bank reflects the growth of demand for finished products of enterprises.

“The crisis in the supply chain began to last until mid-2022 due to overcrowding of ports and lack of containers,” he said.

Growth of inflation in the country

According to him, the growth of inflation in Kazakhstan is becoming more stable.

“From April to August this year, annual inflation reached 7.0% to 8.7%. The monthly increase in prices was the highest in August for the first time since 2008, “the chairman of the National Bank said.

The reason for the rise in price of meat

He said that seasonally adjusted core inflation, excluding rising prices for vegetables and fruits, housing and communal services and energy resources, was 25% higher than the historical average. In this regard, he noted that the main pressure on prices is food inflation, which accounts for 51% of the total consumer price index.

“Its annual growth accelerated by 0.4 percentage points for a month and reached 11.4% in August this year. Prices for meat, vegetables, butter and sugar are rising, ”Dossayev said.

According to him, the share of these goods in the food component in May-August this year amounted to 2.55%. In particular, he noted that the rise in prices for meat in the first 7 months of this year was due to rising world prices and prices for domestic producers due to a 25% rise in prices for fodder.

“The cost of fodder crops is 70% of the cost of meat production. Non-food inflation increased by 0.1% to 7.3% in August, ”the Chairman of the National Bank said.

Inflation of paid services

He also noted that fuel prices continue to rise in the context of rising producer prices and recovery in demand. At the same time, it will accelerate the rise in prices for clothing and footwear. According to him, its share in non-food inflation in May-August this year amounted to 0.94%. Inflation in paid services accelerated to 6.6% in August this year by 0.5 percentage points. Also, due to the increase in marginal tariffs, the increase in electricity prices amounted to 10.1%.

“As part of the recovery in demand, prices for housing, catering, gas and passenger air have increased,” Yerbolat Dossayev said.

He also noted that following the results of the forecast round, the National Bank expects inflation to be in the range of 7.5% -8.5% by the end of this year.

Anti-inflationary pressure

According to him, the growth of income and consumption of the population is an additional source of anti-inflationary pressure. At the same time, the recovery of demand is confirmed by the revival of trade turnover in the second quarter of this year as a result of an increase in real incomes by 1.5%.

“In turn, in the second quarter of this year, household consumption is growing in the context of the acceleration of wages by 10.4% in real terms,” he said.

Thus, taking into account the dynamics of inflation, the pace of economic recovery and, accordingly, the growing anti-inflationary pressure from demand, the National Bank noted that on September 13 this year will raise the base rate from 9.5% to 0.25%.

Low oil prices

He said in August that the United States had experienced high volatility in oil prices due to the imminent termination of the Federal Reserve’s asset purchase program and worsening global investor risk sentiment due to signs of concern about the delta strain. decreased by 4.4%. At the same time, the sale of foreign currency by exporters to meet their tax obligations has regulated the volatility of the tenge in the face of falling oil prices.

“Over the month, the national currency will depreciate by 0.2% to 425.42 tenge per US dollar. The conversion of funds of the National Fund for sales and transfers to the budget under the mandatory sale of quasi-public sector entities also supported the tenge, “Yerbolat Dossayev said.

Assets of the National Fund

According to him, the recovery of economic activity in the first half of the year and the growth of imports by 9.2% will keep the demand for foreign currency at the same level compared to the same period last year. In addition, the assets of the National Fund at the end of August this year amounted to 56.9 billion US dollars. In August this year, it amounted to 396 billion. KZT 845 mln for distribution of targeted and guaranteed transfers. He noted that the US dollar was sold.

“Revenues of the National Fund in August this year amounted to 420 billion tenge. tenge, including 506 mln. tenge in foreign currency. USD or equivalent to 215 bln. tenge, “the chairman of the National Bank said.

Source: Kazakhtan 2050

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