Mongolia economy: Quick View – Inflation remains elevated

Event

The consumer price index (CPI) rose by 8.4% year on year in September, according to a report published by Mongolia’s central bank, with the rate of increase unchanged from August. In month-on-month terms, the inflation rate cooled to 1.2%, from 2.6% in August.

Analysis

After inflation moderated to 7% year on year in July, Mongolia’s consumer prices have risen more sharply in the past two months. Food prices, which comprise roughly one-third of the CPI basket, rose by 11.5% year on year in September. Although prices for food continue to grow steeply, the current rate of increase is nonetheless considerably softer than the 56.7% year-on-year rise posted in September 2012. Core CPI, which does not include food and other goods with volatile prices, rose by 8.1% from its year-earlier level, a slower pace of increase than the 9.6% rise in August.

The recent uptick in the cost of consumer goods is mostly driven by a plunge in foreign investment – which was down by 47% year on year in the first eight months of 2013 – which has weakened the value of the local currency, the togrog. By end-September the togrog was down by 15.4% against the US dollar from its level at the start of 2013, according to data published by the Bank of Mongolia (the central bank). In a country where most finished goods are imported, the effect of weaker currency is quickly felt by consumers. Mongolia’s near-term solution to the problem is to offer as much as US$1bn worth of yen-denominated bonds later in the year, which will ease the crunch on foreign currency.

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