In June 2016, headline inflation slowed to 6.9% y-o-y. Data released by the State Statistics Service of Ukrainer suggest that in month-on-month terms Ukraine recorded deflation of 0.2%.
As anticipated, annual headline inflation continued to decelerate, staying below the projected path published by the NBU in the Inflation Report (April 2016).
The NBU attributes the deviation of headline inflation from the projected inflation path to a sharper-than-expected slowdown in annual core inflation and a steeper decline in raw food prices, which offset a higher contribution from administered prices and tariffs to inflation dynamics.
The decline in core CPI inflation and a decrease in raw food prices contributed to the monthly deflation..
The prices for goods and services included in the core inflation measure dropped by 0.1% m-o-m, (annual core inflation slowed to 8.3%), The seasonal decrease in prices for clothes and footwear, further appreciation of the hryvnia exchange rate, lower inflation expectations and secondary effects from contributed to moderation of core inflation.
In June, raw food prices dropped by 1.3% m-o-m, primarily due to a sharp decrease in prices for certain types of vegetables, such as cabage, tomatoes and cucumbers. The decline in vegetable prices was driven by the seasonal expansion of the supply of vegetables produced domestically, as well as an ample supply of imported goods. Also, prices for fruits, sugar, milk and dairy products registered a seasonal decline.
The decline in core CPI inflation and raw foods prices outpaced the rise in fuel prices and slight increase in administered prices and tariffs. In June, as expected, fuel prices rose by 2.7% m-o-m, driven by oil price increases. As anticipated, administered prices and tariffs increased by 0.7% m-o-m, primarily driven by higher prices for alcoholic beverages and tobacco products. In particular, the prices for alcoholic beverages picked up, reflecting the lagged effects from increases in excise taxes in March. The prices for tobacco products rose due to the pricing policy of individual producers. In contrast, utility prices remained flat in June.
Current CPI and its components’ developments suggest that the end-year headline inflation target of 12% y-o-y +/-3 pp remains within reach).