Inflation Review Q2-2023

Inflation remained low in Q2-2023, but domestic demand price pressures intensified. The annual increase in prices in June rewrote the historical low and amounted to 2.9% (YoY). Annual inflation will remain close to 2% (YoY) in Q3-2023, constrained by the government’s continued strict price controls. The effects of state regulation were the main reason for the annualized quarterly price growth (seasonally adjusted) to slow down to 3.7% (QoQ) in April-June. Blanket price controls largely suppressed the increased inflationary pressure from domestic demand and the labor market. The pro-inflationary impact of these factors has prerequisites to strengthen in the second half of this year due to excessive monetary stimulus and a shortage of labor resources. This may result in accelerating quarterly price growth rates, and annual rates will also increase sharply starting from October. As a result, annual inflation may accelerate to 5–7% (YoY) in Q4-2023 and to 7–10% in 2024 even if the National Bank gradually returns to a neutral monetary policy over the next year.