In April 2020, consumer inflation declined in annual terms to 2.1%, down from 2.3% in March. In monthly terms, prices grew by 0.8%. This is according to data compiled by the State Statistics Service of Ukraine.
As expected, consumer inflation remained below the 5% ± 1 pp target range. However, it was lower than predicted by the projected trajectory published in the April 2020 Inflation Report.
Price growth was held back by several factors. As before, one of the main factors was the plunge in prices for both oil and gas. Inflation was dragged down by declining demand for certain goods and services and by a significant supply of vegetables. In addition, certain services were banned during the quarantine, making their prices unobservable, so these prices remained at the level of the previous month. These factors outweighed the price impacts of the weakening of the hryvnia in March and speculative demand for some goods, which continued into the first half of April amid the coronavirus outbreak and quarantine restrictions.
- Core inflation remained at 3.1% yoy, the level of the previous month.
The fall in nonfood prices decelerated somewhat (to 1.3% yoy). In particular, the growth in prices for pharmaceuticals and certain personal care products accelerated as demand increased. Cars and household appliances remained cheaper than last year, although the difference in prices narrowed due to the weakening of the hryvnia. Meanwhile, clothing and footwear continued to fall in price (by 4.3% yoy), driven by weaker demand and limited supply. Weak demand also pulled prices for electronic devices further down.
The growth in prices for processed foods held steady, at 3.9% yoy. On the one hand, the growth in prices for meat and certain dairy products accelerated due to the surge in consumer demand, restrictions on the operation of food markets during the quarantine, and the weak performance of animal breeding. The growth in prices for pasta and some cereals also sped up. On the other hand, prices for confectionery products, sauces, juices, and canned vegetables rose at a slower pace, and olive oil and coffee continued to fall in price due to weakening demand for nonessential foods.
The growth in services prices continued to decelerate (to 8.7% yoy). Specifically, services prices in sectors that were forced to suspend their operation during the lockdown (catering, recreation, sports, personal care) were not available in April, so in most cases they remained at March levels. In other services, price growth for medical, insurance, dry cleaning services, and housing rentals decelerated as demand waned
- Raw food prices returned to growth (0.8% yoy). Buckwheat, garlic, and lemons grew more expensive amid panic buying in the first half of April. The growth in prices for beef, pork, and milk accelerated due to logistical problems and poor performance of animal breeding. The fall in egg prices also decelerated as production and profitability declined. Vegetable prices continued to decrease. In particular, cabbage, beetroot, and carrots were much cheaper than last year.
- The growth in administered prices decelerated (to 4.3% yoy).
Natural gas prices for households, which plunged after the drop in global and domestic natural gas prices was factored into the new tariffs, were again 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. as production dropped and the hryvnia weakened.
- Fuel prices continued to fall (shedding 18.2% yoy) as global oil prices tumbled in recent months.
Inflationary pressures remain weak due to low energy prices and flagging demand. Because of the lack of supply of certain types of goods and services during the quarantine, there is a possibility that prices for these goods and services will adjust after the quarantine restrictions have been eased.