Exchange Rate Pass Through to Consumer Prices in Kazakhstan: Evidence from Micro-level Data

Abstract

Exchange rate pass-through (ERPT) to consumer prices in Kazakhstan is researched on the basis of micro-level scanner data on food, drug, and tobacco items between 2019 and 2022. The analysis incorporates item-level price data and monthly macroeconomic variables to determine the existing estimated ERPT to price levels; as stated by: static, dynamic, asymmetric, regime-specific, and the origin-based ERPT in three macroeconomic periods, namely, pre-COVID, COVID, and the geopolitical shock of 2022. The results show that ERPT is positive and incomplete but much regime dependent. Pass-through of the USD and RUB is moderate in the basic models, but the CNY effect is relatively very small. Dynamic estimates indicate slow price changes and asymmetric models indicate more strong pass-through in the case of currency depreciations. With the COVID period especially, ERPT also increased significantly, but in the war period of 2022 it decreased as supply chains reorganized. The category and origin analysis proves enlightenment on increased sensitivity of food and tobacco products and foreign-sourced products but the drugs are less sensitive. Overall, the indications show that ERPT in Kazakhstan is subject to changing according to macroeconomic conditions, import structure, and product characteristics. These results imply that exchange-rate change activities present a greater threat of inflation in times of instability and denote the significance of the supply-chain diversification and honest monetary policy.