In March 2017, headline inflation accelerated to 15.1% yoy, up from 14.2% yoy in February. In monthly terms, prices increased by 1.8%, according to data released by the State Statistics Service of Ukraine (SSU).
Inflation acceleration in annual terms was expected. Raw food prices sped up amid increasing production costs, robust exports and the low base of comparison. Scheduled increases in some tariffs and excise taxes also contributed to the acceleration of raw food inflation. Instead, improved conditions in global commodity markets, which resulted in the strengthening of the hryvnia in February and March, restrained the core inflation.
However, actual inflation was slightly below the projected path of annual headline inflation published by the National Bank of Ukraine in the Inflation Report (January 2017), envisaging a slowdown in the annual CPI to 9.1% by the end of 2017. This can be explained by a number of supply-side factors resulting in lower than projected growth of raw food prices. The changes of methodology for calculating the CPI by the State Statistics Service of Ukraine was an additional factor. However, according to NBU estimates, this effect will fade away in the second half year.
In March, core inflation slowed down to 6.3% yoy (stood at 1.7% mom). This slowdown was mainly due to the strengthening of the hryvnia in February-March 2017. It contributed to deceleration in the annual growth of prices for some imported goods , particularly clothing and footwear, textiles, household appliances, pharmaceutical and medical products.. Moreover, on a yearly basis there even were some goods prices for which decreased (vehicles from the EU, audio and video devices, information processing equipment).
At the same time, as expected processed food prices continued to accelerate, reflecting second-round effects from an increase in selected unprocessed food prices, such as raw milk and meat prices.
Annual price growth for selected services included in the core CPI also accelerated. particular, prices for restaurants and hotels, hairdressing salons, notary, taxi, household services, and tariffs for telecommunication services increased in March amid higher operating costs, in particular, due to labor costs.
Raw food price growth accelerated to 7.5% yoy in March ( were up by 1.0% mom). This acceleration was primarily due to a low base of comparison as a result of trade and transit restrictions imposed by Russia in January 2016 not only on Ukrainian but also Turkish goods.
Hence, as expected, the decline in prices for fruit and vegetables continued to slow down in annual terms. However, prices for these products were lower than last year due to ample supply, particularly considering steep temperature growth earlier than last year. In addition, prices for meat and raw milk sped up, reflecting an increase in production costs, ongoing livestock reduction, and robust exports. As partial export restrictions on poultry-related products were maintained, prices for eggs continued to decline in monthly terms.
The growth of administered prices and tariffs accelerated to 39.5% yoy (stood at 3.2% mom). In March 2017, electricity tariffs for the households were increased as planned. In addition, as in the previous month, an important factor behind administered prices acceleration was the increase in fares for passenger road transportation services, driven by rising costs. In March, prices for postal services also significantly increased. Particularly, "Ukrposhta" JSC raised tariffs for its services on March 24 due to increased labor costs. In addition, prices for tobacco products kept rising, reflecting lagged effects of an increase in excise taxes at the beginning of the year
However, despite the increase in excise taxes on alcoholic beverages, prices of these products kept on declining in annual terms. This could be attributed to the sale of inventories, accumulated prior to the tax increase, and a still favorable markup following the increase in minimum prices in December 2016..
Fuel prices remained unchanged in March, causing their annual growth to decelerate (to 26.4%).
Current CPI and its components’ developments confirm that inflation will stay within the target band of 8% ± 2 pp and the year-end inflation target for 2017, which was set out in the Monetary Policy Guidelines for 2017, remains within reach
Labor costs with payroll charge cover about 70% of the cost structure of Ukrposhta. Thus, increase in minimum wages has a significant impact on the cost of postal services provided by Ukrposhta. For more information, see: http://ukrposhta.ua/zmineni-tarifi-na-universalni-poslugi-poshtovogo-zvyazku-nabuli-chinnosti.