The case of the forgetful stenographer

Plus ça change….

This week’s issue of Panorama has a front-page story on consumer inflation.  Don’t worry – you don’t have to spend your hard-earned tenge on this business newspaper.  You can download the press release from the National Bank of Kazakhstan for free.

Panorama (read: The central bank) reports that the annual rate of inflation rose to 7.4% in 2014, more than half higher than the 2013 rate, 4.8%.  The usual suspects are paraded:  The 19% devaluation of the tenge in February, which pushed up import prices and will cause the prices of domestic goods to levitate as well when export growth resumes; higher prices of gasoline and diesel fuel, as well as of some services, later in the year.  “The National Bank continues to take measures to keep inflation within the target corridor of 6-8%,” Panorama proudly announced.

As usual, the paper’s stenographer forgot a slight detail: The money supply.  Bank data paint a curious picture.  The forms of money that are easiest to spend – cash, checks, small savings accounts – shrank considerably over 2014.  Currency (the jargon is “M0 money”) was down 25.8% last December, relative to the previous December.  This won’t surprise anyone who has tried recently to make change at a grocery store.  But broad money – M3, which includes the less liquid forms of moolah as well as cash, checks and small savings – was up 10.5%.  The least liquid forms of money rose 60.1%.

Part of the new money in M3 just paid for new goods and services; the Bank estimates that output rose 4.1% in the first nine months of 2014, compared to the same period in 2013.  What remains of M3 could account for most of the year’s rise in prices, if it were spent.  So a long-standing question remains:  To what extent does illiquid money spur spending in Kazakhstan?  ---Leon Taylor, tayloralmaty@gmail.com

Notes

The phrase "least liquid forms of money" refers to M3 - M2.

References

National Bank of Kazakhstan.  Statistical Bulletin, December 2014.  www.nationalbank.kz

Panorama.  Dolia bankovskovo sektora vo vneshnem dolge strani snizilas’ do 7%.  [The banking sector’s share of the national external debt fell to 7%.]  February 6, 2015.