Ukraine consumer prices surge 2% m/m in September

Ukraine’s consumer price index surged by 2.0% m/m (or
16.4% yoy) in September on the back of soaring prices for food (2.0% m/m growth,
or 18.8% yoy), clothing and footwear (8.9% m/m growth, or 0.8% yoy), alcohol
and tobacco (2.7% m/m, or 25.8% yoy) and education (12.0% m/m, or 15.7% yoy).
The food price surge reflected a 31.0% jump for eggs and a 3.4% increase for
meat. Transportation prices sped up to 1.5% m/m growth (12.6% yoy) from 0.8%
m/m in August.  Utilities grew modestly by 0.4% m/m (23.2% yoy) from 0.3%
m/m in the prior month.  Healthcare prices increased 0.5% m/m (5.8% yoy)
from 0.2% m/m in August. In 9M17, CPI grew 10.2% YTD.

Alexander Paraschiy: We expected
inflation to accelerate in September but the actual price growth exceeded our
projections.  Food prices reflect the consequences of weather conditions
and tendencies at the global markets.  Prices for clothing and footwear
followed the hryvnia depreciation trend. Prices for alcohol increased due to
hiked minimum prices.  Education prices grew due to rising wages for
teachers and lecturers.

In fact, the September result means that our CPI
forecast of 11.8% YTD, or 14.0% yoy for 2017, was optimistic, let alone the NBU
forecast of 9.1% YTD. If price growth slows in October and returns to the
initial trajectory we outlined – we will see CPI increasing 12.6% YTD, or 14.2%
yoy this year.  We also recognize the additional inflation risk from
rising pensions, which began to be increased as of mid-October after parliament
approved a reform package last week. By November, about 5.6 mln pensioners will
be receiving higher pension payments.

The key question now is whether Ukraine’s central bank
(the NBU) will react to the current inflation’s sharp divergence from its
forecasted trend. Recall on Sept. 14, the NBU stated it won’t rule out a
possible hike in its key rate if inflation expectations worsen.
So far, we do not expect any increase in the key rate at the NBU’s meeting on
Oct. 26, but such a risk exists.