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Abstract

Since 2022, the food and energy prices globally have significantly increased. This is causing major problems with inflation globally. The countries within Central Asia are highly affected because they have to import a lot of food and energy, so they show higher sensitivity to the changes within the prices. It is crucial to understand the effect of the price changes within the countries on the inflation within these countries so that we can understand whether the economy is stable or not.

This study focuses on the effect of the price changes globally on the inflation within Kazakhstan, Kyrgyzstan, and Uzbekistan from 2014 to 2024.

The analysis is carried out on the basis of the following four important variables: global food price index, global oil price index, exchange rate to the US dollar, and the domestic inflation rate measured by the Consumer Price Index (CPI). The global price indices are the external shocks to the economies, while the exchange rate and the CPI are the domestic economic response. The data is collected on an annual basis from 2014 to 2024 using international statistical databases such as the World Bank, the International Monetary Fund, etc.

The empirical method employs a combination of time series regression, correlation analysis, and cross-country analysis in assessing the impact of external price shocks on domestic inflation. The CPI is taken as the dependent variable. The main independent variables that affect the CPI through different channels include global food prices, oil prices, and exchange rates. The correlation and time series graphs help in establishing the relationship between global prices and domestic inflation.

The results suggest that the increase in inflation observed after 2022 is closely related to the increase in global food and oil prices, but this relationship is country-specific in terms of transmission strength. Kyrgyzstan appears to be particularly sensitive to exchange rate depreciation, implying that this country is more dependent on imported goods. Kazakhstan appears to be less responsive in terms of transmission effects, which could be related to domestic energy production, whereas Uzbekistan appears to be moderately sensitive, where exchange rate changes are important contributors to inflation changes.

The results imply that external price shocks are a relevant factor in explaining inflation in Central Asia, but their effects depend on specific structural factors related to exchange rate stability, dependence on imports, and domestic markets. The results emphasize the role in explaining inflation.