Inflation in Uzbekistan 2017: Analysis of the Consumer Price Index

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The main indicator of inflationary processes in the consumer sector of the country is the consumer price index (CPI). In the country the CPI calculation system was implemented in January 1994 with the technical assistance of the International Monetary Fund.

The CPI is formed according to the Methodological provisions for the organization of observation of consumer prices (tariffs) for goods and services developed on the basis of the “Consumer Price Index Manual: Theory and Practice” (IMF, OECD, Eurostat, UNECE, World Bank and ILO).

Currently, to compute the CPI in the Republic of Uzbekistan it is used a consumer set of goods and services of 350 names divided into three large groups: food products (96 items), non-food products (188 items) and services (66 items). Thus, the consumer set on the basis of which the CPI is calculated represents a single sample for all regions of the country of the groups of goods and services most often consumed by the population of the country.

It should be noted that along with the price factor (i.e., the actual change in prices for goods and services), the share of specific goods and services also has an impact on the calculation of the CPI. Thus, in the consumer price index the movement of prices for the diversity of goods and services throughout the country is aggregated (averaged).

Composite consumer price index (CPI) and inflation level

In 2017 inflation in the consumer sector of the republic was 14.4%.

Food products became more expensive by 15.9%, non-food goods – by 16.1%, services – by 8.6%.

With an average monthly increase in consumer prices by 1.1%, most significantly the prices grew in November and December 2017 (by 2.0% and 2.7% per month), the price increase was minimum in June and July (by 0.3% and 0.4% per month).

Months

Factors influenced the level of inflation in 2017

The main factors affecting inflation in 2017:

– the devaluation and the policy pursued to liberalize the national currency led to an acceleration in the rate of inflation and affected the overall increase in prices for goods and services.

In particular, in the first half of 2017, consumer prices rose by 5.2%, only in the last four months of the year (from September to December 2017), the price increase was 7.6%. This is due, to a large extent, to an increase in the prices for imported goods, as well as an increase in production costs and prices by domestic producers supplying their products to the domestic market. A good example is the increase in retail prices for cars produced in the country, which for the year became more expensive on average by 1.5 times.

For information: the devaluation of the Russian ruble almost 2 timesin 2014 led to an increase in the level of inflation per year in Russia by 11.4% (in 2013 – 6.5%), in Kazakhstan the devaluation of the national currency in 2015 affected the growth of consumer prices by 13, 6% per year (for comparison, in 2014, inflation in the country was 7.4%).

– increase in gasoline prices from November 2017 by 39.7% led to an increase in the CPI by 0.5 p.p. (percentage points). It should also be noted that as practice shows the increase in prices for gasoline indirectly affects the price rises of other goods and services (due to increased costs of their production and transportation).

– increase in tariffs for housing and utilities services by 7.1% had an impact on the level of inflation, providing an increase in the CPI by 0.4 p.p.

As one more factor of acceleration of inflationary processes in the country it is expectations of the population and the enterprises concerning forthcoming rise in prices which even in the absence of objective factors can move the prices upwards. Inflationary expectations lead to the fact that consumers, starting to stock up on goods for future use, further stimulate price increases.

The slowdown in inflation in the summer months is mainly due to seasonal trends and the saturation of the market with fruit and vegetable products of the new harvest, which led to a decrease in prices for fruit and vegetables (in June – by 13.8%, July – by 14, 9%,  August – by 4.6%).

Structure of the effect of rising prices for goods and services on the growth of composite consumer price index

Consumer price index for food products

As noted above, food products for the year were more expensive on average by 15.9%, which ensured a total increase in the CPI by 6.9 p.p.

The dynamics of price changes by months during the year was uneven: due to seasonal trends in June and July food prices decreased by 1.0% and 0.7% per month, while the peak in price growth was registered in December 2017 (by 4, 4% per month).

Months

Changes in consumer prices for major types of food products are presented below:

Rise in prices for basic food products in January-December 2017

(as % of December 2016)

In 2017, prices for beans increased by 42.4%, eggs by 36.1%, beef by 35.9%, peas by 33.2%, poultry meat by 33.1%, mutton by 31.4%, sugar by 28.8%, margarine by 21.3%, milk by 20.6%, butter by 19.9%, cottage cheese by 18.5%, coffee and tea – by 17.0%, rice by 16.2%, vegetable oil by 15.3%, cheeses by 15.1%, confectionery by 14.0%, flour by 10.4%.

In December 2017 in the regions of the republic there were differences in the level of average prices for certain food products:

The gap between the highest and the lowest price for beef between the regions of the republic was 1.3 times, mutton – 1.5 times, rice – 2.0 times, potatoes – 1.3 times.

Consumer price index for non-food products

Non-food products for 2017 went up by 16.1%, which led to an increase in the CPI by another 5.7 p.p.

The dynamics of prices for goods of this group is characterized by a steady tendency to growth:

Months

About 4.0 p.p. or 27.4% of the total increase in the CPI is connected with an increase in the prices for clothing, footwear, fabrics and textiles, construction materials, stationeries, personal hygiene items, personal transport and gasoline, which is clearly demonstrated in the following diagram:

Consumer price index for services

Prices and tariffs for services rendered to population increased on average by 8.6% over the year, which led to an increase in the composite CPI by 1.8 p.p.

The main inflation factors in this area were increases in tariffs for communication services – by 23.9%, legal and banking services – by 15.0%, personal services – by 8.3%, housing and utilities services – by 7.1%, passenger transport services – by 6.9%, which affected the growth of the CPI by 1.4 p.p. (the share of influence is 9.9%).

Forecasts of experts for 2018

According to the IMF data, inflation in the republic in 2018 will be  14.3%.

The Central Bank of Uzbekistan forecasts inflation in the range of 11.5-13.5% in 2018.

What awaits us in 2018?

Currently, this issue is extremely important for the population of the country.

Inflation is a volatile economic value, which will be influenced by many factors, including:

– in 2018, construction materials are expected to increase in prices due to the enactment of Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 1025 “On measures to further improve the system of supply and sale of natural gas and electricity,” which will also affect the increase in the price index for non-food products and the general level of inflation;

– the rate of the US dollar is another factor that will determine the price dynamics in 2018;

– as we have already mentioned, inflation expectations – expectations of the population and enterprises with regard to price increases – can have a significant impact on the price situation in the country.

Source: Department of Price Statistics, stat.uz

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