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NBU July 2019 Inflation Update

NBU July 2019 Inflation Update

In July 2019, consumer inflation was at 9.1% yoy, up from 9.0% in June. In monthly terms, prices fell 0.6%. This is according to data published by the State Statistics Service of Ukraine. 

Actual inflation exceeded the path forecast by the NBU, published in its July 2019 Inflation Report. This was primarily due to faster-than-expected growth in prices for some raw foods. Meanwhile, core inflation was in line with the NBU’s forecast.

  • Core inflation was 7.4% in annual terms in July, unchanged compared to previous months. А tight monetary policy was a major factor in containing the underlying price pressures , in particular through the exchange rate channel. The further strengthening of the hryvnia helped keep non-food inflation low, at  2.0% yoy. The prices of household appliances, transport vehicles and personal care products also grew at a slower rate. The prices of clothes and footwear were almost unchanged in annual terms. The prices of some equipment and machinery remained lower than a year ago.

The growth in the prices of processed foods also remained unchanged, at 8.9% yoy. Buoyant external demand pushed up the prices of meat products, while a decline in milk output caused the growth in the prices of dairy products to accelerate. This was offset by weaker growth in the prices of bread, chocolate, sauces, tinned fish, margarine, and spreads.   

The prices of services remained among the fastest-growing in the basket of consumer goods, although they decelerated somewhat, to 13.8% yoy. Sustained consumer demand and relatively strong wage growth prevented services pricesfrom slowing further. In particular, the prices of catering, mobile communications, and recreational and cultural establishment services grew more rapidly. The growth in the prices of housing maintenance decelerated, mainly due to the comparison base effect. The growth in the prices of hotel, hair salon, taxi, dental services and rents also decelerated, driven by, among other things, the exchange rate factor.

  • The growth in raw food prices accelerated, to 10.3% yoy. The prices of cucumbers, tomatoes, marrows and egg plants increased more rapidly in the wake of unfavorable weather. Apple prices continued to decline at a slower pace. Prices for all types of raw meat and milk rose at a faster clip, driven by robust external demand and a decline in livestock. Egg prices decreased more slowly. In addition, expectations of a poorer sugar beet harvest in Ukraine and rising global prices led to a rise in sugar prices.

In contrast, the growth in the prices of borsch vegetables slowed, as expected, as new harvest vegetables came onto the market. More specifically, prices for onions and beetroot increased less rapidly, while carrot prices were even lower than last year.

  • The growth in administered prices slowed to 15.5% yoy. Gas prices for households decreased, owing to a drop in global gas prices and changes to the methodology for setting gas prices for households. Prices for tobacco and alcoholic beverages, road transport services, and water supply and sewage services also grew less rapidly. Conversely, railway transport fares, especially those for commuter transport, rose at a slightly faster rate.
  • Fuel prices fell by 0.4% yoy, mainly due to a drop in global oil prices and favorable conditions on Ukraine’s FX market.

The actual inflation figure shows that overall inflation came in higher than forecast by the NBU, driven largely by supply-side factors related to foods, resulting, among other things, from unfavorable weather conditions. That said, underlying inflation pressures, as measured by core inflation, were generally in line with the NBU’s expectations and the forecast the central bank published in its July 2019 Inflation Report.

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