In October 2017, headline inflation predictably slowed down to reach 14.6% yoy versus 16.4% yoy in September.  The Core Consumer Price Index decreased from 2.0% mom in September to 1.2% mom in October. This is confirmed by the data published by the State Statistics Service of Ukraine. A decrease in growth of raw food prices and administered prices and tariffs was the main reason for the deceleration.

Actual inflation turned out to be close to the forecast published in the new Inflation Report for October 2017.

• Core inflation stood at 8.1% yoy in October, having grown 1.2% mom. Prices for services that contribute to core inflation continued to increase at a fast pace, particularly, driven by rising production costs and buoyancy in the consumer market. At that, growth in prices for services provided by restaurants and hotels, as well as financial, insurance, medical, and travel services also gained momentum. Meanwhile, prices for secondary education, repairs of household appliances, rent, etc. grew slower.

Processed food prices have accelerated. Prices for meat and dairy products continued to grow at a fast pace, reflecting second-round effects of a rise in raw food prices.

In October, growth rates of prices for a number of non-foods, mainly imported ones, became slightly higher on the back of the hryvnia depreciation. This includes prices for cars, drugs, furniture, and heaters. At the same time, prices for clothes and footwear rose slower owing to a lagged impact of the exchange rate trends on prices (the majority of clothes and footwear sellers make purchases of their goods a few months before the season).

• Escalation of raw food prices slowed down to 25.3% yoy in October. Growth of vegetable prices decelerated, as expected, owing to the increased supply of the late vegetable harvest, primarily, of borshch vegetables. Similarly, the pace of fruit prices growth became slower, mainly, thanks to the greater supply of apples. Moreover, sugar prices decelerated expectedly against the backdrop of low global prices and a sizable supply in the domestic market. Buckwheat prices continued falling. At the same time, growth of dairy and meat prices remained high.

• As expected, growth in administered prices and tariffs decelerated (to 20.3% yoy) against a favorable comparison base, in response to an increase in heating and hot water tariffs in October 2016. Growth in prices for alcoholic beverages, tobacco goods, and transportation services also slowed down. Alongside, a rapid rise in prices for bread and local telephone service continued due to an increase in their costs.

• Growth in fuel prices speeded up predictably, to 16.0% yoy (4.4% mom). Particularly, in October, prices for gasoline and diesel fuel continued rising on higher oil prices and depreciation of the hryvnia against the euro (the fuel excise taxes are set in euros).

The current trend of the CPI and its components is close to the forecast published in the new Inflation Report for October 2017 and shows that,  at the end of 2017, inflation will expectedly deviate from its target and then return back in 2018.