April 2022: The price of palaw decreases for the first time in the last 7 months.
The average cost of cooking palaw in Ashgabat was 78.7 Turkmen manat in April 2022, which is 0.3% lower month-on-month compared to March 2022 (79 manat) and 14.2% cheaper year-on-year compared to April 2021 (91.8 manat). We register the first annual deflation (price reductions) of Palaw Index in April 2022 since we started publishing our monthly Palaw Index report in October 2021.
Prices of all palaw ingredients have decreased in April 2022 on a year-on-year basis. Prices of carrots have declined by 40%, onions by 39%, cooking oil by 26%, wheat flour by 18%, rice by 12%, and beef had a 5% price reduction (see Figure 1).
Does the value of black-market exchange rate make a difference?
The value of manat against 1 USD in black market exchange rate averaged at 37.8 manat in April of last year in 2021, while in April 2022 the exchange rate averaged at 19.4 manat. This is almost 50% decline. One might wonder why despite 50% decrease in black market rate, we see only 14.2% decline in the annual inflation rate of Palaw Index in April 2022?
First, not all ingredients of Palaw Index are directly impacted by the USD exchange rate. Although wheat flour, rice, carrots, beef, and onions are largely produced domestically, the USD exchange rate can still indirectly impact the prices of these products as agriculture requires technical equipment and other inputs, which are imported from abroad with USD. Cooking oil, on the other hand, are primarily imported from abroad, mainly from Russia. So, any change in USD exchange rate will directly influence the price of cooking oil sold in Turkmenistan.
Price of cooking oil in Turkmenistan decreased by 26% compared to April of 2021, while exchange rate is down by almost 50% compared to the same period. However, Russian oil producers exporting to Turkmenistan also increased the price of sunflower oil by 22.9% in 2021 in Russia with the average price of one liter of exported oil at 1.52 USD. If we control for price hikes of cooking oil from Russia, then it can explain the difference between the USD exchange rate and annual inflation in April 2022.
Moreover, Russia introduced export quotas for sunflower oil at 1.5 million tones between April 15th to August 31st of 2022. This might have impacted the prices of sunflower oil sold in Turkmenistan as we observed a price increase of 8.6% from 32.4 manat in March 2022 to 35.2 manat in April 2022 for one liter of sunflower oil. According to the FAO Food Price Index, international food prices also went up by 29.8% in April 2022 year-on-year. International vegetable oil prices within Food Price index have also significantly increased by 46.4% year-on-year in April 2022.
Second, even if the exchange rate of the USD drops, sellers are not willing to reduce the price of products immediately as they might have outstanding stocks of products that they bought at the price of more expensive exchange rate. Moreover, due to the instability of the USD exchange rate, sellers will not lower the prices right away fearing that the exchange rate will go up again. Sellers are usually quick to respond to hikes of exchange rate, while reacting slower when the exchange rate drops. Sellers would like first trust and be convinced about the stability of exchange rate before they adjust prices of goods based on exchange rate. It is important to note that Turkmenistan does not have a competitive market economy in which dozens of sellers compete to attract customers. Therefore, market economy-based explanations cannot be fully applied here.
What about monthly price changes of palaw?
On a monthly basis, palaw prices have been decreasing significantly from 116.4 manat in September 2021 to 78-79 manat in March and April of 2022. Overall, the price difference of palaw between September 2021 and April 2022 is 32.4%. When it comes to the black-market exchange rate of the manat/USD, it declined from 27.3 manat in September 2021 to 19.4 manat in April 2022, which is a 29.1% decrease.