Inflation Determinants in Kazakhstan: A tale of (at least) two stories

This paper assesses the relative contribution of domestic and external factors to headline inflation in Kazakhstan. We confirm earlier results that inflation is primarily imported, and we provide novel details on the sources of imported inflation and its transmission channels. We find that domestic factors like fiscal policy and more recently utility tariff increases are the key determinants of domestic inflationary pressures. We provide new information on the likely determinants of inflation expectations through which domestic and external factors affect inflation. We find that monetary policy has only been partially successful at containing domestic and external pressures with insufficient liquidity sterilization, likely contributing to weakening of the interest rate transmission channel. Finally, we find that shocks are highly persistent and bringing back inflation to its target is likely to be a difficult and long process for the Central Bank.