Data released by the State Statistics Service of Ukraine (SSU) suggests that, following three months of deflation, headline inflation stood at 1.8% m-o-m in September 2016. In annual terms, inflation moderated to 7.9%.
The annual inflation reading was in line with the NBU’s forecast published in the Inflation Report (July 2016), which foresees a return of inflation to 12% y-o-y by the end of 2016. In particular, a further slowdown in core inflation and raw food inflation (to 6.3% y-o-y and 3.5% y-o-y, respectively) contributed to the deceleration in annual inflation.
The acceleration of inflation (m-o-m) in September was in line with the NBU’s forecast. However, the increase in inflation came in below the NBU’s expectations. The deviation of actual inflation from the projected path was attributed to lower-than-expected core inflation and a less significant change in raw food prices.
- Core CPI rose by 2.0% m-o-m in September, primarily driven by an increase in prices for clothing and footwear (by 10.3% m-o-m). According to the SSU methodology, changes in prices for clothing and footwear were not directly reflected in price statistics during March-August. Accordingly, the cumulative price changes over this period were reflected in price statistics for September. However, the increase in these prices was lower than expected. Also, the costs of educational services have risen significantly (by 5.3% m-o-m) due to a seasonal increase in the tuition fees for secondary and higher education. As expected, the hryvnia depreciation, which occured in August-September, continued to pass through to import prices, including prices for vehicles, pharmaceuticals, and medical supplies and equipment, as well as audio, photographic, and information processing equipment.
- Raw food prices rose by only 0.2% m-o-m, which fell short of the NBU’s seasonally adjusted forecast. In particular, prices for fruits, vegetables, and select grains recorded a sharper-than-expected decline that reflected the ample supply of domestic fresh produce. The fall in these prices virtually offset increases in prices for meat and meat products, as well as milk and dairy products, which were driven by higher production costs and increased global food prices.
- Administered prices and tariffs rose by 2.8% m-o-m in line with the NBU’s forecast. As expected, the increase in administered prices and tariffs was mainly driven by an upward adjustment of utility prices. Electricity tariffs for households recorded the largest increase (by 27.8% m-o-m) among utility tariffs. Prices for tobacco products and alcoholic beverages continued to move upwards in line with expectations.
- Fuel prices rose by 0.8% m-o-m due to the hryvnia depreciation in August-September and a slight increase in oil prices.