Tashkent, Uzbekistan (UzDaily.com) -- Institute for Forecasting and Macroeconomic Research (IPMI) experts analyzed the impact of inflation in Russia on inflation in Uzbekistan.

Russia is one of the main trading partners of Uzbekistan. About 18% of Uzbekistan’s external trade is with Russia.

The rise in prices for goods and services imported from Russia affects the level of inflation in Uzbekistan.

Inflation in Uzbekistan in 2021 amounted to 10%, of which 0.78 percentage points changed under the influence of rising prices in Russia (in 2021, inflation in the Russian Federation is 6.7%). Moreover, the rise in commodity prices led to an increase in production costs by 0.6 percentage points (a direct effect without taking into account intersectoral interactions).

Given that, unlike Turkey (according to Bloomberg estimates, the devaluation of the Turkish lira in 2022 is predicted to be around 60.4%, this year it is expected not to weaken (devaluate), but to strengthen the ruble (since the beginning of the year, the ruble has strengthened from 74.79 to 60.20 rubles per dollar), inflation in Russia carries more macro-stability risks in Uzbekistan than rising prices in Turkey.

Against the backdrop of import restrictions, the strengthening of the ruble in Russia in 2022 is projected to be 28.4%, and inflation - 21.3%.

Under these conditions, Russian goods in international markets may become more expensive by 69.41% (goods from Turkey - by 1.8%), as a result of which the effect of price increases in Russia for Uzbekistan in 2022 may increase to 6 p.p. (with the same structure and volumes of imports from Russia). These risks are also due to the fact that the share of Russian imports in its total volume is much higher than the share of Turkish imports (Russia’s share is 21.4%, Turkey’s is 6.7%).

In addition to accelerating inflation, this factor can negatively affect the balance of foreign trade between Russia and Uzbekistan, exacerbating the already unbalanced balance of payments, which in turn creates additional pressure on the stability of the national currency.

For example, in 2021, Uzbekistan imported products worth US$5.46 billion from Russia, which is equal to 402.5 billion rubles at the 2021 exchange rate. Assuming that the volume and structure of imports remain unchanged, today these imports are worth US$8 billion. With unchanged exports, the trade balance may worsen.

According to the results of the first half of 2022, Uzbekistan’s imports from Russia amounted to US$2.85 billion, and the volume of exports reached US$1.22 billion (deficit - US$1.63 billion).

Growth of cost-push inflation in Uzbekistan due to higher prices in Russia will primarily affect importers of raw materials and intermediate products from Russia.

Moreover, the calculations can be used by companies to make better short and medium term decisions.