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NBU June 2019 Inflation Update

NBU June 2019 Inflation Update

In June 2019, consumer prices increased 9.0% yoy, down from 9.6% in May. In monthly terms, prices fell 0.5%. The price data is as published by the State Statistics Service of Ukraine.

Actual inflation remained higher than the NBU had projected and published in its April 2019 Inflation Report. At the same time, the deviation from the NBU’s projections was significantly smaller than in May, as the impact of adverse supply factors waned as expected. Core inflation declined slightly faster than expected.

  • In June, core inflation remained at 7.4% in annual terms. Tight monetary policy remained a strong factor that held back fundamental pressures on prices, in particular through the exchange rate channel.

Specifically, due to the strengthening of the hryvnia in H1 2019, both against the US dollar and the basket of currencies of Ukraine's main trading partners, the growth in prices for nonfood products continued to slow (to 2.0% yoy). Prices for clothing and footwear, furniture, home appliances, and transport vehicles grew at a slower pace, while prices for TV sets declined more quickly.

The growth in prices for services (14.0% yoy) has remained almost unchanged since the beginning of the year. The slowdown of the growth in prices for services is constrained by further wage increases and sustained consumer demand. Prices for catering and hotel services, as well as those of health resorts, increased at a faster rate in June. This was offset by slower growth in prices for dry-cleaning services, healthcare services, cinemas, and housing rentals, which may also partially reflect exchange rate effects.

At the same time, the growth in the prices of processed foods accelerated (to 8.9% yoy). Prices for meat products increased, driven by lower supply and higher global prices. The lower wheat harvest of the previous year continued to accelerate the growth in bread prices.

  • The growth in raw food prices decelerated substantially (to 7.8% yoy), primarily due to the expansion of the supply of newly harvested vegetables, especially vegetables used to make borshch. Prices for onions and beets increased less rapidly, while cabbage and carrots were even cheaper than last year. In addition, egg prices declined at a faster pace due to a large increase in poultry farming output. Meanwhile, due to unfavorable weather conditions (an unusually strong heat wave and low precipitation), the seasonal decrease in prices for field vegetables in monthly terms was lower than last year, which caused their prices to grow more rapidly in annual terms. The same factor affected strawberry prices, which remained higher than last year, and apple prices, which significantly increased in monthly terms for the second month running.

With global prices up and negative expectations for Ukraine’s sugar beet harvest this year having increased, sugar prices also returned to growth. Milk prices increased at an accelerated pace, driven by growth in global prices in previous periods, itself driven by stronger demand for quality products and by a drop in milk supply due to a further reduction in the cattle population.

  • The growth in administered prices decelerated (to 17.0% yoy). The increase in prices for natural gas slowed as a result of cheaper global prices and the adoption by the government of a new methodology for setting household gas prices. Prices for tobacco products and railway transport services also increased at a slower pace. At the same time, the growth in the cost of alcoholic beverages and water supply and sewage collection accelerated.
  • The rate of growth in fuel prices continued to slow (to 2.6% yoy). Renewed oil product shipments from Belarus and Russia, a partial switch to suppliers from Europe and the domestic market, and an acceleration in the decrease in global oil prices in annual terms helped reduce the pace of domestic fuel price growth. 

Actual inflation shows that underlying inflationary pressures are gradually easing, in line with the NBU’s projections. Although prices for some vegetables and fruits grew faster in June as a result of adverse weather conditions, the overall negative impact of the temporary vegetable supply factors that fueled high inflation in previous months is waning.

The NBU will release updated inflation estimates together with a new macroeconomic forecast on 18 July 2019 during a press briefing on the decisions made by the NBU Board at its meeting on monetary policy issues. The July 2019 Inflation Report, scheduled to be published on 25 July this year, will describe the updated forecast in greater detail.

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