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Inflation to Return to Target Range in Early 2020

1 November 2018

Press Release


The National Bank of Ukraine (NBU) has revised its 2018 inflation forecast upwards, from 8.9% to 10.1%, due to the sharp increase in global energy and wheat prices and the larger-than-expected growth in wages in Ukraine. This is according to the quarterly Inflation Report of October 2018.


The expansion in consumer demand, rapid wage growth, and the recent spike in crude oil prices will continue to impact consumer price inflation next year. This will keep inflation above the target range for longer than expected. Whereas the NBU predicted in July that inflation would enter the target range (5% +/- 1 pp) at the end of 2019, now it expects year-end inflation to drop to 6.3% next year.


Inflation will enter the target range in Q1 2020 and reach the medium-term target of 5.0% at the end of 2020. The slowdown in inflation will be mostly driven by the tight monetary conditions, which resulted from the previous key policy rate hikes.


The NBU has also revised its international reserves projection. According to the NBU’s latest press briefing on the monetary policy of 25 October 2018, the year-end 2018 reserves hinges primarily on the amount of the tranche issued under the new stand-by arrangement with the IMF, inflows from other official financing sources, and volumes of eurobonds placed by the Ukrainian government. Given the above aspects, including the recent placement of eurobonds by the government, the NBU expects international reserves to increase to USD 19.2 billion in 2018 (covering 3.2 months of future imports). The continued cooperation with the IMF will allow to maintain international reserves at that level in 2019–2020, despite the period of peak repayments of public debt.


Apart from updated macroeconomic forecasts, the October Inflation Report also deals with a number of special topics, including the following:


– Inflation estimates based on the online price indices


According to various estimates, the annual growth in e-commerce in Ukraine amounts to almost 30%. In 2017, e-commerce accounted for 4%–9% of the total retail trade turnover of enterprises. This has given boost to the development of web scraping, that is, the collection of data from online sources with the use of dedicated software.


Many national statistical organizations and other public institutions have already launched their projects on the introduction of web scraping to support their official statistics. These include the U.S. Bureau of Labor Statistics and statistics authorities of the United Kingdom, the Netherlands, New Zealand, and Norway.


In 2015, the NBU also launched a web scraping project to collect the consumer price data for the purpose of obtaining a forward-looking inflation estimate used in monetary policy decision-making. With the data collected from online sources and with the use of other modeling tools, the NBU can produce short-term inflation projections nearly two weeks prior to the official data publication by the State Statistics Service of Ukraine for the purposes of in-depth analysis and implementation of the monetary policy.


– Poland’s labor market and the role of Ukrainian employees in it


The economic crisis Ukraine faced in 2014–2015 has intensified labor migration. Poland has become one of the most popular destinations among Ukrainians due to higher wages, strong demand for labor, and its proximity.


However, the potential for further growth in the migration flows to this country has decreased lately. In particular, in H1 2018, the number of issued permits increased by only 20% compared to H1 2017, whereas the increase was above 100% during the two preceding years.


The NBU expects the intensity of labor migration from Ukraine to Poland to decline further due to the prospects of slower economic growth in Poland (3.5% in 2019 and 2.8% in the medium term according to the IMF forecast) and weaker growth in job openings and employment, which are both evidenced by the recent market surveys of Polish enterprises, as well as the moderate interest of Polish employers in hiring Ukrainian workers.


Nevertheless, the risk of increased migration will remain material due to the rising interest of Ukrainians in being employed abroad. This is evidenced by Google Trends data showing that the number of search queries on finding a job in Czech Republic has increased since H2 2017. Moreover, a number of European countries announced their plans to streamline the procedures for employment of foreign citizens.


The Inflation Report reflects the opinion of the National Bank of Ukraine as to the current and future economic state of Ukraine, with a focus on inflationary developments, which form the basis of monetary policy decision-making. The National Bank of Ukraine has been publishing its Inflation Report on a quarterly basis since April 2015.

Last modification   01.11.2018