Inflation in Uzbekistan: Drivers and Dynamics

High and volatile inflation remains a persistent threat to economic prosperity in Uzbekistan. Over the last 12 years, Uzbekistan’s inflation rate has fluctuated sharply around its annual average of 12 per cent and increased by 20 per cent at the beginning of 2018, which was the highest figure in the last two decades in the country. For policymakers, it is crucially important to examine inflationary factors and the dynamics of inflation to implement effective policy actions to curb inflation. Using the VECM model, this study investigates the short and long-term drivers of core inflation and its dynamics from 2010 to 2022. The study finds that money supply and real GDP have a significant impact on inflation in both the short and long run, while Uzbek soum’s depreciation, remittance, import volume and global gold prices drive core inflation only in the long term. All these variables have a positive impact on inflation except real GDP and global gold prices. The analysis concludes that the core inflation rate will decrease to 11 to 12 per cent in the coming next two years along with an increase in real GDP and global gold prices. However, the likelihood of Uzbek soum’s depreciation and a significant increase in import volume are high as well. Under a scenario of higher gold prices and monetary policy restraint, the core inflation rate may fall further.