11 June 2018
May 2018 saw a substantial slowdown in headline inflation - to 11.7% yoy (compared to 13.1% in April). The CPI was unchanged month-on-month (compared to a 0.8% increase in
April). This is according to data released by the State
Statistics Service of Ukraine.
A further decline in annual inflation had been
expected, and the May reading came in somewhat below the NBU’s projected
inflation trajectory, which was published in the April 2018 Inflation Report. This was mainly the result of a sharp slowdown in
food price inflation. In addition, administered prices grew less rapidly than
in April, as the growth in tobacco prices decelerated and public utility tariffs
increased at a more moderate pace.
As anticipated, the effects of the temporary supply
factors that caused inflation to come above the NBU’s forecast in H2 2017 have
been gradually fading. This was a result of the more favorable weather compared
to last year’s late frost, and more ample import supply. Another factor was tight
monetary policy of the NBU. Its effect was the strongest in the exchange rate
channel - the hryvnia exchange rate has been strengthening since late January
At the same time, further increase in production
costs, wages in particular, and a rapid recovery in consumer demand, continued
to put upward pressure on prices.
Core inflation decelerated
in May, to 9.3% yoy. In contrast to the previous two
months, the annual rate of core inflation came in slightly lower than the NBU’s
In particular, the prices of services showed a much slower increase (by
14.3% yoy), inter alia, due
to the strengthening of the hryvnia effective exchange rate. This dynamics was
seen, in particular, in the costs of tourist and excursion services and
domestic resort services. In addition, the growth in the housing maintenance
costs continued to decelerate due to the waning effect of a high comparison
base, while slower growth in taxi fares reflected a slight slowdown in annual
price growth for fuels. The rise in the
cost of a number of other services (such as personal care, mobile
telecommunications, cable TV, healthcare advisory services, and dental care)
accelerated, driven by robust consumer demand and growing production costs, including
due to rising wages.
The growth in the prices of highly processed foods continued to slow (to
11.4% yoy). This was a result of a more moderate rise
in the prices of raw materials, inter alia, due to a more ample import supply
and the strengthening of the hryvnia against the currencies of Ukraine’s trading partners. Specifically, growth in prices
for meat and dairy products continued to slow. At the same time, growth in
clothing and footwear prices slightly accelerated (to 2.4% yoy),
annual rate of increase in prices for other non-food prices remained flat
compared to the previous month (at 5.0%), reflecting rising consumer demand.
● The growth in raw food prices slowed markedly (to 14.5% yoy),
coming below the NBU’s forecast. The rate of growth in
the prices for fruit and vegetables slowed significantly (to 2.4% yoy and 15.7% yoy, respectively).
This was especially true for the prices for vegetables used in cooking borsch,
and vegetables grown from seed, such as cucumbers, tomatoes, and eggplants,
which were weighed down by more ample supply. The rising supply and a drop in global prices
caused fruit prices to decline, particularly for bananas and citrus
The decline in global meat prices contributed to a slower
growth in the prices for meat products in Ukraine. Raw milk prices also
rose at a somewhat slower pace, following a similar trend for the purchase
prices of raw milk, and the growth in exports of dairy products somewhat
weakened. At the same time, egg prices rose faster, amid strong demand abroad.
● Administered prices slowed (13.3% yoy),
virtually in line with the NBU projections.
Tobacco prices increased less quickly than in April. In addition, growth
in utility prices moderated due to a smaller increase in utility tariffs
compared to last year. This outweighed the further acceleration in the growth
of railway and air transportation costs and the costs of urban public
● The growth in fuel prices slowed (to 16.5% yoy) as
the hryvnia strengthened against the currencies of Ukraine’s
trading partners, especially the euro (the excise tax on fuels is set in the
euro). However, these prices came in above the forecast, due to a steeper increase
in global oil prices than expected.
Given the gradual diminishing
of temporary supply factors, and the rather tight monetary conditions, the NBU
expects headline inflation to continue to slowly decline in line with the projections
(of 8.9% yoy for end-2018) and return to its target
range in mid-2019.