Uzbekistan: Broad-based moderation of price growth in Jun to warrant further rate cuts

CAUCASUS / CENTRAL ASIA - In Brief 14 Jul 2023 by Ivan Tchakarov

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Inflation dropped to 9.0 percent in June, the lowest level in the last 6 years. Headline CPI fell into single digits last month for the first time since Jan 2017. Inflation had been inching up over the course of 2022, hitting 12.3 percent YoY in Dec’2022 (9.8 percent in Jan’ 2022). However, favorable base, moderating food price growth and seasonal factors have contributed to bringing headline inflation down to 9.0 percent YoY in June 2023 (Graphs 1 and 2). The stabilization of inflation expectations (Graph 3) argue for even lower price growth into year end, although at the forecast 7-8 percent in Dec, it will still remain above the 5 percent CPI target.Graph 1Inflation fell to single digits for the first time since early 2017Source: Statistical Office of Uzbekistan, Author’s calculations.Graph 2The decline in inflation has now become broad-based with all components contributing to the moderation of price growthSource: Statistical Office of Uzbekistan, Author’s calculations.Graph 3Inflation expectations are the lowest leve in the last 3 yearsSource: Statistical Office of Uzbekistan, Author’s calculations.Real policy rate is running at 5.0 percent, which now falls in the range the central bank considers consistent with an outright tight policy stance. The Central Bank of Uzbekistan judges monetary policy to be moderately tight when the real policy rate is at 2.0-3.0 percent and tight when the real policy rate at 4.0-5.0 percent (Graph 4). The level of the real rate indicates that monetary policy has now transitioned from a moderately tight to an outright tight position, which should serve as an impotant factor in expecting that the central bank will strongly consider dec...