In August 2019, consumer inflation declined in annual terms – to 8.8%, down from 9.1% in July. In monthly terms, prices fell by 0.3%. This is according to data published by the State Statistics Service of Ukraine.
The actual inflation figure was close to the forecast trajectory published in the NBU’s July 2019 Inflation Report, but was still above it, after deviating from it during the previous month. The slight deviation was primarily due to faster-than-expected growth in food prices. In addition, in August, prices for certain vegetables and livestock farming products continued to rise slightly faster than expected. At the same time, this deviation was largely offset by other components: the somewhat lower-than-expected core inflation, falling fuel prices, and a more rapid slowdown in administered prices.
- Core inflation declined in annual terms in August, to 7.2%. The tight monetary policy remained a strong factor in holding back underlying price pressures, in particular through the exchange rate channel. This was mainly reflected in the growth of prices for nonfood products, which slowed to 1.4% yoy. In particular, prices for home appliances, furniture, recreation products, pharmaceuticals, household chemicals, and other goods grew more slowly. Prices for clothing and footwear were unchanged from last year, while prices for motor vehicles and computer equipment fell.
The growth in prices for processed foods held steady as well, at 8.9% yoy. On the one hand, dairy products continued to become more expensive, driven by a decrease in the supply of raw materials, robust demand for quality dairy products, and holdups in production as producers prepared to meet new hygiene requirements. As external demand strengthened, prices for meat products continued to increase at a high rate. On the other hand, prices for pasta, coffee, olive oil, sauces, and juices increased more slowly, which may be partially attributable to the exchange rate effect.
The rise in prices for services accelerated (to 13.9% yoy), propelled by steady consumer demand and relatively strong wage growth. In particular, the prices of catering, mobile communications, cultural establishment services and outpatient services grew slightly faster.
- The growth in raw food prices accelerated further, to 10.9% yoy. More specifically, the prices of livestock farming products – primarily milk, beef, and pork – increased more rapidly as livestock declined and external demand gained strength. Egg prices decreased at a slower pace. The increase in potato prices accelerated, owing to a poorer harvest of this crop. However, the overall impact of supply factors, which in previous periods led to significant increases in prices for vegetables and fruits, weakened somewhat in August. In particular, watermelon prices declined in annual terms, thanks to an ample harvest. The greater supply slowed the rise in prices for most vegetables, including onions, tomatoes, cucumbers, zucchinis, and more.
- The growth in administered prices slowed to 14.8% yoy. Gas prices for households decreased due to a drop in global gas prices and changes to the methodology for calculating gas prices for households. The increase in prices for tobacco products and alcoholic beverages was unchanged from last month.
- Fuel prices continued to fall (by 3.2% yoy), driven by a drop in global oil prices and favorable conditions in Ukraine’s FX market.
Actual indicators of price movements show that headline inflation approached the NBU forecast trajectory published in the Inflation Report for July 2019. Although supply factors for certain foods, consumer demand, and relatively strong wage growth continued to put pressure on prices, the tight monetary policy further eased the underlying price pressures as measured by core inflation, including through the exchange rate channel.