Whose Inflation Is It? The Import Basket and the Futility of Fighting Prices Through Demand

At every meeting with the Chairman of the National Bank, we are told about inflation of 6–8% per year.

At every meeting with the Minister of National Economy, we diligently fight rising prices. Yet the fight should be systemic, not a matter of controlling prices. I have always wanted to ask: where is the catch?

In the best of the golden years of the 2000s, inflation in Kazakhstan was always in double digits, and it bothered no one.

Today inflation is at the level of the average European country, and we keep fighting it like Don Quixote tilting at windmills.

For the ordinary person, inflation is a rise in the price of what he uses in his daily life.

When I got up this morning, I took a look at what I have in my bathroom.

French perfume, Thai deodorant, German shaving supplies, Italian lens solution, Russian dental products, a Chinese toothbrush holder.

Turning my head, I saw a Turkish towel, a Turkish bathrobe, and Chinese slippers.

I sleep on Turkish or Belarusian bed linen. I wear European or Chinese clothes with a European brand. Italian shoes, Chinese phones from America, a German car.

I was starting to get downcast and to wonder whether I would find anything Kazakhstani in my home at all.

Hoping to, I dragged myself to the kitchen. German appliances, a Russian table, Chinese utensils. I looked into the cupboard: spices, definitely not ours; Russian grains; Italian pasta. We don't eat sugar, and the sea salt is not ours either.

And then, finally, I found something domestic:

eggs, milk, kefir and honey. There was also a piece of local meat lying around in the refrigerator.

Everything that is not Kazakhstani has risen in price by 50–70%, and Kazakhstani goods by roughly 5–10%.

So the question is: what was my personal inflation rate?

There is no point in fighting inflation here. Any fight conducted by reducing demand only leads to a decline in production.

Inflation has to be fought by increasing the diversity of production. And here it is not for the state itself to try to build every industry, but to create the conditions for production.

We are a commodity-based country and sell only raw materials, and in fact any depreciation makes roughly 80% of everything we use more expensive.

To gain a competitive advantage through a cheap currency, we first have to create these industries, and for that we need a strong tenge. That is the dichotomy.

We have not learned to make door handles, yet we immediately decided to make cars, diesel locomotives, and even satellites.

Believe me, it is better to ensure that every Toyota carries some bushings made in Kazakhstan than to have some minister driving around in a Kazakhstan-made Toyota.

Tomorrow, look out for a post on the outcome of the meeting with the Prime Minister and comments on the Minister's tax proposals.