There continued to be a slowdown in consumer price inflation in July 2018, to 8.9% yoy (compared to 9.9% in June). In month-on-month terms, prices dropped by 0.7%. This is according to data released by the State Statistics Service of Ukraine.
This further year-over-year drop in inflation had been expected, and its July value was in line with the NBU’s projected inflation trajectory published in the July 2018 Inflation Report. This was mainly the result of slower growth in food prices, driven by a significant increase in the supply of food. In addition, the growth in the prices of some non-foods was less pronounced due to the strengthening of the hryvnia against the currencies of Ukraine’s trading partners seen in previous months, which was caused by, among other things, the NBU’s tight monetary policy.
- Core inflation slowed somewhat in July, to 8.8% yoy, and on the whole was in line with the forecast. Nevertheless, core inflation remains high amid sustained consumer demand, buoyed by the high rate of growth in real wages.
- The growth in the prices of processed foods slowed, to 10.6% yoy. This resulted, among other things, from a slowdown in the growth of raw material prices, which was caused in part by an expansion in the supply of domestic and imported raw materials, and a decline in global food prices. Specifically, there continued to be a slowdown in the growth of prices for meat and dairy products, including butter.
- The growth in non-foods prices also decelerated. In part, this was attributed to the strengthening of the hryvnia against the currencies of Ukraine’s trading partners that was seen in previous months. This affected the prices of clothes, footwear and some other non-foods (such as some pharmaceuticals, small household appliances, mobile phones and TV sets).
- The prices of services also grew at a more moderate clip (13.8% yoy). Most notably, the growth in catering prices decelerated on the slower growth in food prices. In addition, the growth in the dwelling maintenance costs continued to slow due to the waning effect of a high comparison base. To the upside, there was an acceleration in the rise in the cost of personal care and other personal services, as well as temporary accommodation services, reflecting continued pressure from consumer demand.
- The growth in raw food prices decelerated noticeably in July, to 1.0% yoy. Lower vegetable and fruit prices were the major contributors to this slowdown. In particular, the prices of most vegetables used in cooking borsch (cabbage, potatoes, and onions) and vegetables grown from seed (cucumbers and tomatoes) fell as domestic and imported supply expanded. Favorable weather increased the supply of domestic fruit and berries. Along with that, a fall in global meat prices, coupled with a decline in pork and beef exports, contributed to a slowdown in the growth of domestic prices for raw meat. Growth in milk prices decelerated due to these same factors. At the same time, egg prices rose at a faster pace, driven by robust external demand and higher export prices.
- Administered prices grew more quickly, to 13.8% yoy. Specifically, the cost of urban public transport increased, reflecting a rise in the cost of Kyiv public transport. The growth in water supply and sewage rates also accelerated on the back of higher rates in some cities. Despite a deceleration, prices for tobacco products continued to grow at a fast pace.
Fuel prices grew more rapidly (to 19.0% yoy), due to, among other things, a hike in liquefied gas prices.
Despite the easing pressure from food and some non-food prices, underlying inflationary pressures have remained high amid sustained consumer demand. However, the current monetary policy stance is reasonably tight to keep consumer price inflation on downward path in line with the NBU forecast (8.9% yoy by the end of 2018), and to return inflation to its target range in Q4 2019.