In February 2016, annual headline inflation moderated to 32.7% y-o-y, down from 40.3% in the previous month. Furthermore, the State Statistics Service of Ukraine recorded deflation of 0.4% on a month-on-month basis.
In annual terms, headline inflation outperformed the NBU’s inflation projections, being below the price growth path projected by the NBU (the latter envisages consumer inflation at 12% by the end of 2016).
The drop in consumer prices was primarily driven by the supply-side factors. These factors had more significant impact on price developments than it was anticipated, outweighing pass-through of hryvnia exchange rate volatility, which was observed in the first two months of the year, to CPI growth.
The slowdown in core inflation (to 25.1% y-o-y) also outperformed the current NBU forecast. Core inflation stood at 0.4% m-o-m in February. Its subdued measure reflected a further decline in prices for clothes and footwear (by 2.0% m-o-m).
The exchange rate volatility pushed up prices for imported goods, which are included in the calculation of core inflation. However, its impact was moderate. Prices for certain goods even fell, e.g. for make-up, equipment for recording audio and video information.
The increase in administered prices and tariffs slowed to 47.3% y-o-y, (a m-o-m decline of 0.2%), at a faster pace than expected. The discrepencies were mainly due to a further decrease in prices for tobacco products (down by 3.0% m-o-m). Additionally, prices for heating and hot water also have fallen amid the corresponding tariff cuts in some regions. Given the decrease in domestic fuel prices, passenger transportation costs in city commercial buses declined somewhat as well. The falls in prices for all these items offset a pick-up in other administered prices and tariffs, including prices for alcoholic beverages, bread and other utility services.
The decrease in raw food prices was in line with NBU expectations (price growth moderated to 27.9% y-o-y, whereas in monthly terms, these prices declined by 1.8%). In particular, prices for eggs, meat and meat products declined as expected. At the same time, prices for some imported foodstuffs, such as citrus fruit and greenhouse vegetables (e.g., tomatoes) recorded a deeper decline than expected, reflecting the increase in their supply amid trade restrictions imposed by the Russian Federation.
As expected, domestic fuel prices kept decreasing (by 8.2% y-o-y and by 1.0% m-o-m), reflecting past falls in global oil prices.