In February 2020, consumer inflation declined in annual terms to 2.4% (down from 3.2% in January). In monthly terms, prices fell by 0.3%. This is according to data published by the State Statistics Service of Ukraine.
Consumer inflation was below the 5% ± 1 pp target range, as expected. However, inflation continued to decline faster than predicted by the projected trajectory published in the January 2020 Inflation Report.
The faster disinflation was driven by lower energy prices, a greater supply of raw foods, and the sustained impact of last year’s appreciation of the hryvnia on the prices of goods. These factors outweighed the upward pressure on prices from a steady increase in consumer demand, which was amplified by consistently higher household incomes.
- Core inflation slowed to 3.0% yoy (down from 3.3% yoy in January). Last year’s strengthening of the hryvnia continued to be reflected in the prices of imported goods and products with a large share of imported inputs.
The drop in prices for nonfood products deepened to 3.2% yoy. That includes price declines from last year for clothing and footwear, electronic devices, home appliances, and cars. Prices for household textiles, household chemicals, personal care products, toys, pharmaceuticals, and medical supplies increased marginally over the year.
The growth in processed food prices decelerated to 4.1% yoy. Imported goods such as pasta, fish and seafood, and coffee mainly increased in price at lower rates. Products like spices, rice, and olive oil were even cheaper than last year. Price growth also slowed for dairy products, limited by an increase in the supply of imports. In addition, the growth in prices for bread and bakery products decelerated due to the high grain harvest.
The growth in services prices decelerated (to 11.0% yoy). The stronger hryvnia dragged down the growth in prices of services with import-driven costs, or those closely correlated with the exchange rate. These include dry cleaning services, manicure services, hairdresser services, cable TV, and tourist services. The slower growth in prices at restaurants and cafes also reflected lower food price inflation. Meanwhile, prices for cinemas tickets, sports facilities’ services, personal vehicle insurance, financial services, and funeral services grew more rapidly, fueled by robust consumer demand.
- Raw food prices declined (by 1.3% yoy). Thanks to the ample harvest of most vegetables and mild winter temperatures, prices of cabbage, carrots, onions, and beetroot in the winter months were half the level of a year ago. Warm weather and the larger supply of imported products helped push down prices for greenhouse vegetables and slowed the rise in potato prices. A decline in feed prices, stronger competition in external markets, and the growth in domestic production resulted in eggs becoming significantly cheaper. These factors, along with an EU ban on imports of chicken meat out of an abundance of caution over the spread of bird flu, made prices for this product fall faster. In addition, high grain yields continued to reduce the cost of flour and cereals.
- The growth in administered prices decelerated (to 6.7% yoy). Natural gas prices for households, which plunged (by 31.3% yoy) as global natural gas prices fell, were the strongest contributor to the slowdown in the growth of administered prices. The cost of heating and hot water supplies also declined in annual terms due to the effect of the accounting methods used to reflect a heating discount that went into effect after natural gas prices in various regions of Ukraine changed. Prices for alcoholic beverages rose at a moderate pace. In contrast, prices for water supplies and sewage services increased more quickly, fueled by higher production costs, including wages and input prices.
- Fuel prices were still down 6.1% yoy from last year’s levels. This was the result, among other things, of the fall in January in global oil prices, which manifested itself with a lag, and the hryvnia’s appreciation in previous months.
In January, the NBU projected that inflation would reach 4.8% by late 2020. However, the central bank may revise that estimate as the coronavirus outbreak spreads further around the world and the global commodity and financial markets go through bouts of turbulence. The NBU will publish a scheduled quarterly revision of its macroeconomic forecast at the end of April this year.