In March 2020, consumer inflation declined in annual terms to 2.3%, down from 2.4% in February. In monthly terms, prices grew by 0.8%. This is according to data compiled by the State Statistics Service of Ukraine.
Consumer inflation was below the 5% ± 1 pp target range, as expected. However, consumer inflation continued to decline faster than predicted by the projected trajectory published in the January 2020 Inflation Report.
Price growth was held back by several factors. First, energy prices in the global markets plunged. Second, markets priced in the effects of last year’s strengthening of the hryvnia. Third, the supply of raw foods increased, including due to warm weather. These factors outweighed the price impacts of the hryvnia’s weakening in March and speculative demand for some goods amid quarantine restrictions.
- Core inflation was little changed at 3.1% yoy, up from 3.0% yoy in February. Yet prices for various components of the CPI moved in different directions.
The fall in nonfood prices slowed to 1.9% yoy. Specifically, prices for clothing and footwear, electronic devices, home appliances, and cars fell at a slower pace in March due to a weaker hryvnia. The hryvnia’s weakening, coupled with stronger demand, spurred the growth in prices for medical supplies, soap, and toilet paper.
The growth in the prices of processed foods slowed to 3.9% yoy. The high grain harvest weighed on the growth in bread and flour prices. Price growth also decelerated for dairy products, dragged down by an increase in the supply of imports. Rice and olive oil prices were lower than a year ago, continuing to reflect the effect of the hryvnia’s strengthening last year.
The growth in services prices decelerated (to 9.9% yoy), primarily due to the quarantine measures imposed halfway into March. Demand for most services was dampened by transportation restrictions, social distancing, and expectations that incomes would fall. As a result, prices for catering, recreation, sports, and personal care were nearly flat for the month, while price increases for these services decelerated in annual terms. In contrast, prices for health insurance services grew faster, driven by the spread of coronavirus and a weaker hryvnia.
- Raw food prices extended their fall, declining by 1.1% yoy. On the one hand, some of the goods in this group increased in price as households took to panic buying amid a contraction in the supply of some goods that occurred after authorities imposed quarantine restrictions. In particular, buckwheat prices in March grew more rapidly, as did garlic, lemon, beef, and pork prices. On the other hand, prices for vegetables, including those used in the cooking of borshch, continued to be below last year’s levels despite edging higher during the month. A decline in feed prices and the growth in domestic production resulted in egg prices continuing to fall. The same factors, amplified by an import ban the EU put in place until 7 March 2020 out of an abundance of caution over bird flu fears, drove chiken meat prices lower.
- The growth in administered prices decelerated (to 5.5% yoy). Natural gas prices for households, which plunged (by 39.2% yoy) after the drop in global and domestic natural gas prices was factored into new tariffs, were the strongest contributor to the slowdown in the growth of administered prices. Cheaper natural gas was also instrumental in reducing the cost of heating and hot water supplies. Prices for alcoholic beverages rose more modestly. Fueled by higher production costs, including wages and input prices, prices for the water supply and sewage services increased more quickly.
- Fuel prices continued to fall (shedding 7.7% yoy) as global oil prices tumbled in recent months.
Although inflation in March slowed in annual terms, risks that consumer prices may accelerate their growth going forward intensified. These risks include pressure from panic demand for certain goods, and the logistical challenges posed by the spread of coronavirus. In addition, the effect of a stronger hryvnia that used to put a drag on inflation in recent months is now waning. The NBU will take into account these and other factors as it revises its macroeconomic forecast, which will be presented at the NBU Board’s 23 April 2020 press briefing on monetary policy and published in the April 2020 Inflation Report.