April Inflation Slows To 0.7%

The slowdown resulted in a 5.1% YTD rate. In March, consumer prices grew by 1.6%, while producer prices accelerated to 2.5% in April (1.9% in March) and totaled 7.5% YTD. Concorde Capital: Congratulations Tymoshenko! April’s moderate inflation is undoubtedly a result of the Prime-Minister?s decisive, yet unpopular, decisions to cap retail prices and revalue the hryvna, among other measures. Meat prices, a significant CPI growth driver in 1Q05, demonstrated a 0.8% decrease in April, as the result of an agreement between the government and meat-producers on a 10% retail price ceiling. Also, the government managed to contain gasoline prices by introducing a 13% cap on retail prices until June 1. The strong appreciation of the hryvna’s (a 4.3% increase), as well as cancellations and reductions of import duties (particularly on consumer products), also contributed to the April CPI slowdown. At the same time, the accelerated growth in producer price rates, mainly due to a ~50% rise in railway tariffs, continues to increase the PPI gap relative to CPI. Most of the government?s price regulation measures will only be effective in the short-term, so it is questionable whether inflation will be less than 10% in 2005. We still maintain our annual inflation forecast of 12%.