In October 2016, headline inflation stood at 2.8%. Headline inflation accelerated to 12.4% in annual terms according to data released by the State Statistics Service of Ukraine (SSU).
The annual inflation reading was in line with the NBU’s inflation forecast published in the Inflation Report (October 2016) that projects that annual inflation will return to 12% by the end of 2016.
• In October, core infation stood at 6.5% y-o-y (in monthly terms, core CPI rose by 0.9%), remaining almost unchanged compared to the previous month. In particular, the growth in prices for non-foods, mostly imported ones, has slowed down due to declining inflation expectations, moderate pass-through-effects of the depreciation of the hryvnia on consumer prices, as well as a high base of comarison. These price developments almost offset price increases for highly processed foods, which were driven by faster growth in raw food prices.
• Raw food price increases accelerated to 4.5% y-o-y (to 2.9% m-o-m) driven by supply side factors. Thus, prices for eggs rose sharply, reflecting stronger exports to Middle East countries in the previous months. As expected, the growth in prices for meat and meat products (except pork) accelerated, reflecting a reduction in the livestock population and higher production costs. These factors, reinforced by an upturn in global food prices observed in the previous months, have contributed to an increase in prices for milk and dairy products. The increase in prices for beef and dairy products was supported by stronger external demand for Ukrainian products. The effect of the suspension of state price regulation for select socially sensitive products, effective from 1 October 2016, is assessed as being moderate.
• The increase in administered prices and tariffs accelerated to 30.1% y-o-y (to 5.7% m-o-m). The upward adjustment of tariffs for heating (by 52.2% m-o-m) made a significant contribution to the acceleration of inflation on administered prices. In addition, the annual growth of natual gas prices accelerated amid preferential natural gas tariffs that were in effect last year. The growth in prices for tobacco products and alcoholic beverages also sped up.
• The increase in fuel prices accelerated to 16.0% y-o-y (in monthly terms, fuel prices rose by 1.1%), driven by an increase in global oil prices in late September and the first half of October following an OPEC agreement to freeze production.
In October, the producer price index rose sharply (to 29.2% y-o-y and 5.4% m-o-m), primarily reflecting the upward adjustment of electricity tariffs for industrial consumers. Also, global prices exerted stronger pressures on commodity prices, including prices for coking coal, iron ore, and metal scrap. However, given moderate price increases in food production, the impact of changes in producer prices on consumer prices remained weak (for greater details see the Impact of Producer Price Inflation on Consumer Price Developments in Ukraine published in the Inflation Report for July 2016, pp. 16-17).