Galim Khussainov
Inflation and the tengeBankingLending and mortgagesTaxationEconomy and public policyManagement

Inflation and the tenge · 2 min read

Gas Tariffs and the Gap Between Producer and Consumer Prices

Translated from Russian with the help of AI. Original: Russian version

A rise in the gas tariff and a gap between producer price growth and consumer inflation point to further price increases ahead.

My gas bill arrived today.

The tariff is KZT 31.05 per cubic meter. Before the devaluation, gas cost KZT 23.64 per cubic meter.

That is an increase of 31% over 18 months, or roughly 21% in annualized terms.

We have a law on gas and gas supply, which states that all gas in the Republic of Kazakhstan belongs to the state if it is associated gas, and that producers of such gas must supply it at cost plus 10% (I may be mistaken, but not by much). This product is a by-product, and its cost is essentially notional. Most likely, the bulk of the cost consists of depreciation of fixed assets and wages. I am not sure that fixed assets were renewed over this period, and I am not sure that employees' pay rose by more than 30%. So I have a logical question: how is the gas tariff set? I would think this is the last product whose price should be rising at such a pace.

There is an indicator called the industrial producer price index. Over the long term, it should not differ greatly from the consumer price index for goods and services (inflation). If there is a difference, it is precisely a time lag that must work itself out in the future, either through higher consumer prices or through higher producer prices, depending on which indicator is running ahead. If we look at these indicators since August 2015, producer prices rose by 34.7%, while consumer prices rose by 22.1% over the same period (if one believes the statistics). This means that consumer prices will have to rise by at least another 12.6% in the future, and that is before accounting for the growth that will occur in the industrial goods segment. That is roughly how it looks. So either someone is being disingenuous about consumer prices, or about producer prices, or about the plans for 8% annual inflation.

Published in: Facebook, 28 February 2017

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