In May 2020, consumer inflation slowed in annual terms to 1.7%, compared to 2.1% in April. In monthly terms prices grew by 0.3%. This is according to data published by the State Statistics Service of Ukraine.
Consumer inflation remained below its target range of 5% ± 1 pp, as expected. It was also lower than predicted by the projected trajectory published in the April 2020 Inflation Report.
Inflationary pressures remained weak mainly due to a significant drop in consumer demand for nonessential goods. Price growth was also restrained by lower energy prices, persisting favorable FX conditions, increased supply of vegetables, and frozen prices for many services.
- Core inflation, at 3.0% yoy, was little changed compared to April.
The decline in non-food prices was 1.4% yoy, the level of the previous month. Weak consumer demand and favorable FX conditions decreased the prices of household appliances and electronics further. The prices of cars, clothes and footwear also remained below last year’s levels. Once the panic buying during the quarantine ceased, the growth in the prices of pharmaceuticals stopped, while that of the prices of personal care items decelerated.
The growth in the prices of processed foods also remained practically unchanged, at 3.8% yoy. The easing of quarantine restrictions and weak demand slowed the growth in the prices of meat and most dairy products, as well as flour products. The growth in the prices of chocolate, canned vegetables and soft drinks also slowed, while olive and sunflower oil remained cheaper than last year.
The growth in services prices continued to decelerate, to 8.4% yoy. Weak demand slowed the growth in rents, dry cleaning and insurance prices, as well as prices for the services of restaurants and other caterers. Conversely, the prices of hair dressing salons and beauty parlors grew at a faster pace. Prices for the services of those sectors that did not resume operations in May due to quarantine (recreational, sport and educational facilities) remained at the level of March.
- The growth in raw food prices accelerated, to 1.5% yoy. Milk prices rose at a faster pace. The growth in the prices of fruit, such as apples, accelerated due to their decreased supply. Strawberry prices also grew faster, due to less favorable weather than last year. Egg prices increased in the wake of a decline in egg output. The growth in the prices of lemons and garlic decelerated markedly after the panic buying of these products stopped. The easing of logistical problems following the relaxation of the quarantine pushed down meat prices. The prices of most vegetables also remained significantly below last year’s levels.
- The growth in administered prices slowed, to 3.5% yoy. Gas prices for households, which decreased after the drop in global and domestic gas prices was factored into the new tariffs, made the largest contribution to the slowdown in the growth of administered prices. Prices for alcoholic beverages also rose more modestly.
- Fuel prices continued to fall (to 28.2% yoy) as global oil prices tumbled in recent months.
Inflationary pressures remain weak, in part due to subdued demand and low energy prices. As a result, consumer inflation remains below its 5% ± 1 pp target range. Due to quarantine, there is still no supply of certain goods and services, so there is a possibility that after the quarantine restrictions are eased, prices for such goods and services may undergo a correction. There is also a risk that raw food prices will rise, driven by the adverse weather conditions seen in May and a reduction in livestock farming output.