National Bank of Ukraine

The NBU’s statement on the level of inflation in May 2018
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11 June 2018

Press Release


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 2018.


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 projections. 


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 fruits.


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 transport.


      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.


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