Impact of inflation in Russia on inflation in Uzbekistan analyzed

It is noted that Russia is one of the main trading partners of Uzbekistan. Russia accounts for about 18% of Uzbekistan’s foreign trade. As a result of inflation in Russia, the price of goods and services imported from Russia will increase in price, which will affect the level of inflation in Uzbekistan.

In 2021, the inflation rate in Uzbekistan was 10%. Inflation rate in Russia (6.7% in 2021) caused inflation in Uzbekistan to increase by 0.78%. The increase in the prices of raw materials imported from Russia led to an increase in production costs in Uzbekistan by 0.6%.

It is reported that, unlike Turkey (where, according to Bloomberg, the devaluation of the Turkish lira is expected to be around 60.4% in 2022), the ruble is expected to strengthen rather than devaluation this year. During the year, the ruble strengthened against the US dollar from 74.29 rubles to 60.20 rubles. In this situation, the inflation rate in Russia puts more pressure on the price stability in Uzbekistan than the price increase in Turkey.

Taking into account that in 2022, the value of the ruble in Russia will increase by 28.4% and the inflation rate will reach 21.3%, Russian goods may be 69.41% more expensive on the world market (in Turkey – 1.8%). As a result, price increases in Russia in 2022 may affect Uzbekistan by up to 6 percentage points. The reason for this risk is also related to the fact that the share of Russia in the total imports of Uzbekistan (21.4% in 2021) is much higher than the share of Turkey (6.7%).

It is noted that this factor, in addition to accelerating inflation, is unlikely to have a negative impact on the foreign trade balance between Russia and Uzbekistan, and to further strengthen the imbalanced balance of payments. This creates an additional impact on the stability of the national currency.

In 2021, Uzbekistan imported products from Russia with a total value of 5.46 billion US dollars. This is equal to 402.5 billion rubles at the exchange rate of 2021. If it is assumed that the volume and composition of imports will remain unchanged, today these imports will amount to 8 billion US dollars. If exports remain unchanged, the trade balance may worsen.

According to the results of the first half of 2022, the import of Uzbekistan from Russia amounted to 2.85 billion dollars, while the export volume reached 1.22 billion dollars (deficit – 1.63 billion dollars).

According to the data, the increase in price inflation in Uzbekistan due to the price increases in Russia will primarily affect the importers of raw materials and intermediate products from Russia. Companies can use these calculations to make better short- and medium-term decisions.