TOPIC OF THE WEEK: Inflation set to accelerate in 2025, but remain broadly contained
Inflation fell in all CCA countries in 2024 despite above-average economic growth. Average price growth moderated from 5.4 percent in 2023 to 3.3 percent in 2024. Inflation reached a bottom in 1Q24, chiefly on still powerful base effects, mainly food, but some acceleration of price growth has gradually become ever more evident across the board through the year, and I anticipate that momentum to entrench itself over the course of 2025.
As a result, the region will see an acceleration of inflation over the course of 2025, albeit from low levels. Faster price growth will be observed almost in every CCA economy, including Armenia, Azerbaijan, Georgia and Tajikistan. Uzbekistan is the only country where average inflation will edge down, although it will remain the highest in the region due to government efforts to bring utility prices closer to market levels. I expect all CCA economies to approach their respective CPI targets in 2025, with Uzbekistan, again, the only outlier where price growth will still be running above target. Quantitatively, I estimate that inflation in 2025 will average 5.0 percent, i.e., that it will continue to remain broadly contained through the course of the year.
The forces that would keep inflation in check, including less potent growth dynamics, deflationary PPI impulses from China, still relatively tight monetary policy in the region and, possibly, lower oil prices during the new Trump administration should dominate the more robust price pressures deriving from Russia and the expectations of modestly weaker currencies. This baseline scenario is particularly sensitive to the behavior of food prices given CCA's outsize food share in the CPI basket, although current forecasts for food inflation for 2025 appear benign.
In essence, higher inflation this year will be chiefly driven by low base effects rather than core macroeconomic considerations.
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