In March, headline inflation continued to slow for the second consecutive month and stood at 13.2% yoy (down from 14.0% yoyin February). In monthly terms, the Consumer Price Index (CPI) increased 1.1%. Those are the data published by the State Statistics Service of Ukraine.
Despite a slight slowdown, actual annual inflation has remained somewhat above the forecast published in the January 2018 Inflation Report and the NBU’s targets.
A larger-than-expected increase in food prices was the main reason for high inflation, same as in the previous month. Continued growth in production costs, particularly labor costs, also contributed to the inflationary pressure. A fast recovery of consumer demand affected prices as well. Inflation expectations of some groups of economic entities remained high.
Meanwhile, the NBU’s tight monetary policy helped contain inflationary pressure, in particular via the exchange rate channel. The previous key policy rate hikes have expectedly made hryvnia financial instruments more attractive, which encouraged foreign capital inflows. Coupled with an increase in exporters’ foreign currency revenues, this caused the depreciation trend of the hryvnia to reverse since late January 2018 and hryvnia to appreciate thereafter. The strengthening of the hryvnia, both against the US dollar and the currencies of Ukraine’s trading partners, was mainly reflected in the prices of fuels and imported goods.
A lower contribution from the increase in administered prices as well as crude oil price correction were additional factors restraining inflation.
- In March, core inflation slowed to 9.4% yoy (down from 9.7% yoy in February). The March core inflation readings matched the NBU’s expectations and offset previous deviations.
The decline in core inflation was primarily due tosubstantially lower imported inflation. More specifically, the pace of growth in prices for clothing and footwear, which had been sluggish in the previous months, decelerated even more to 0.5% yoy. Prices for processed foods also grew slightly slower (11.8% yoy) on the back of increasing imported supplies.
On the other hand, the, although the hryvnia appreciation influenced the price trends for selected services.growth in prices for personal care, communication, and dry cleaning services decelerated. However, growth in prices for some other services (etc.) accelerated, spurred by consumer demand and production costs. Price growth for other non-food goods also accelerated on higher consumer demand (to 5.2% ).
- Amid narrowing supply, prices for raw foods continued to rise at a fast pace (23.3% yoy) in March, above the forecast made by the NBU in January. Prices for meat and milk continued to rise rapidly, while price growth for eggs, borsch vegetables, and apples accelerated. Supply factors (particularly a further decline in animal breeding and robust exports) remained the main contributor to the rise in prices. Consumer demand was an important factor as well.
Meanwhile, global price trends and import-driven increase in supply curbed growth in food prices. Thus, growth in prices for greenhouse vegetables and tropical fruit continued to slow down in March.
- Administered prices grew slower (13.6% yoy), in particular due to the comparison base effect as electricity prices and excise taxes for most alcoholic drinks were raised in March 2017. At the same time, prices for bread and tobacco products grew at a fast pace despite a slight deceleration. Prices for water supply and sewage collection also continued to rise.
- Growth in fuel prices slowed markedly (to 18.9% yoy) as a result of lower oil prices in early 2018 and benign FX market conditions.
According to the NBU, the current monetary policy stance is tight enough for headline inflation to decline gradually and return to the target range in the middle of 2019. The revised inflation forecast was presented to the public at the monetary policy press briefing held on 12 April. А new detailed macroeconomic forecast will be published in the April 2018 Inflation Report on 19 April 2018.