According to data released by the State Statistics Service of Ukraine, consumer inflation slowed from 9.8% in 2018 to 4.1% in 2019. Thus, last year the NBU achieved its medium-term inflation target of 5% ± 1 pp, which the central bank announced from 2015, and which was set out in the NBU’s Monetary Policy Guidelines for 2019 and the Medium Term.
The fall in inflation to its target seen in 2019 mainly resulted from the NBU’s consistent monetary policy aiming to deliver price stability, and the government’s prudent fiscal policy.
The key contributor to the noticeable slowdown in consumer price growth was the strengthening of the hryvnia exchange rate. The strengthening was brought about by investors’ strong interest in hryvnia financial instruments, which was generated by the attractive yields of these instruments on the back of a long period of macroeconomic stability. The overall productivity growth of the Ukrainian economy was another factor. The weaker inflationary pressure was also supported by a general drop in the prices of the energy resources that Ukraine imports, and lower pressures from the supply of food. As a result of this, the inflation expectations of households, financial analysts, businesses and banks gradually improved.
Together, these factors outweighed the impact of faster-than-expected growth in consumer demand and wages.
The slowdown in inflation proved to be more significant than envisaged by the NBU in the forecasts published in its 2019 inflation reports (6.3% in late 2019), and in the estimates of other expert organizations.
- Core inflation decelerated to 3.9% in 2019, from 8.7% in 2018.
There was a drop in the prices of those non-foods that are mostly imported products or products for which prices are import-driven. In particular, 2019 saw a fall in the prices of cars, clothes and footwear, household appliances, and electronic devices. The growth in the prices of furniture, personal care products, household chemicals, and pharmaceuticals was insignificant thanks to the exchange rate factor.
The prices of most processed foods increased moderately, including the prices of pasta and confectionaries, meat and dairy products, fish and seafood, tea, and juices. Moreover, the prices of rice, olive oil and sunflower oil even decreased compared to 2018, as the bulk of these products greatly depend on imports and global prices.
Meanwhile, services prices continued to rise at a rather high pace, driven mainly by sustained consumer demand and increased business expenses, such as labor costs. The largest increases were recorded in the prices of financial and notary services, cable TV, education, mobile communications, and for hair salon, hotel and medical services. The stronger hryvnia decelerated the growth in the prices of those services that are more closely linked to the exchange rate. These included the prices of rents, cinema and internet, restaurant and cafe, and dental and tourist services.
- The growth in raw food prices was moderate in 2019, at 3.9%, compared to 3.3% last year. The good harvest led to a decline in the prices of most vegetables (apart from potatoes). These vegetables were cabbage, carrots, onions, tomatoes, eggplants, sweet peppers, and beetroot. Beef and pork prices grew only slightly, while chicken prices actually dropped compared to last year, due to supply exceeding demand. Only the prices of some foods, such as apples, potatoes and buckwheat grew at a fast pace, due to the poorer harvest of these products in 2019.
- The growth in administered prices decelerated to 8.6%, compared to 18.0% in 2018. Gas prices for households decreased markedly on the back of lower prices on European markets. Prices for alcoholic beverages, cold water and sewage disposal increased at a moderate pace, with electricity prices remaining unchanged over the year. Meanwhile, tobacco prices grew at a reasonably fast rate, as excise taxes on these products continued to be brought to European levels.
- Fuel prices declined by 8.2% compared to the 9.1% growth seen in 2018, due to both the strengthening of the hryvnia and an overall fall in global energy prices.
The NBU will continue to conduct a monetary policy in support of its inflation target of 5% ± 1 pp. Low inflation will create conditions for sustained economic growth, the dedollarization of the economy, and lower loan rates for businesses and households.
The NBU will make public its new macroeconomic forecast on 30 January 2020 during a press briefing on decisions taken by the central bank’s Board. More details of the forecast will be given in the Inflation Report to be published on 6 February 2020.