Inflation hits 14.4%

Mongolia’s inflation rate stood at 14.4 percent at the end of March. Although inflation slowed down slightly to 14.2 percent in February, it rose by 0.2 percentage points and Mongol Bank alerted about risks of further rise in inflation due to internal and external factors.

Inflation began to intensify in April last year and has been rising steadily since then. It’s been almost half a year since it exceeded 10 percent. Prices for transport increased the most by 23.8 percent, followed by prices of food, beverages, and water, which rose by 18 percent.

Inflation has exceeded the target level of central banks not only in Mongolia but everywhere around the world. For example, inflation in the USA has reached a 40-year high, mainly driven by the rise in food prices.

Foreign trade is a key issue for Mongolia. It is struggling to get sufficient supplies of goods and products due to supply chain disruptions. Oil, gas, and energy prices have also risen due to the international geopolitical situation.

In this regard, the rise in prices of imported goods is putting pressure on inflation, Mongol Bank reported. In particular, rising prices of imported goods now account for 52.1 percent of inflation. In other words, 7.5 percentage points out of the 14.4 percent inflation were caused by the rising prices of imported goods.

On top of that, coal exports decreased by 62.2 percent in the first quarter of the year. Mineral exports, which usually make up the largest bulk of export earnings, are very low. As a result, foreign exchange inflows to Mongolia are declining, putting pressure on the balance of payments and official foreign exchange reserves. In addition, rising global inflation is expected to last longer than anticipated.

Mongol Bank estimates inflation to be around 13 percent by the end of this year. It is expected to decrease to 7 percent by 2023. This level can be achieved by using monetary policy instruments to stabilize inflation and making adjustments as needed, the central bank says. The Asian Development Bank estimates inflation in Mongolia at 12.4 percent and will remain high in the medium term.

The Asian Development Bank pointed out that the government of Mongolia needs to implement a comprehensive macroeconomic policy at a time when foreign trade is disrupted. It added focus on improving border conditions with neighboring countries and importing and exporting goods could assist in controlling inflation.