Ukraine consumer inflation slows to 4.1% in 2019

Ukraine’s consumer prices declined 0.2% m/m in December
from 0.1% m/m growth in November, mostly due to declining prices for clothing
and footwear, housing and utilities, and transportation, the State Statistics
Service reported on Jan. 9.

Annual inflation slowed to 4.1% yoy from 5.1% yoy in
November (and 9.8% yoy in 2018).

Prices for clothing and footwear dropped 3.4% m/m in
December (vs. a 1.4% m/m decline in November). Prices for housing and utilities
dropped 2.3% m/m (vs. 2.8% m/m growth in November) mostly due to an 11.2% m/m
decline of prices for natural gas. On top of that, transportation prices
declined 0.8% m/m due to a 0.8% m/m decline of prices for gasoline.

Food prices stayed flat m/m in December (vs. a 0.1%
m/m decline in November). In particular, prices for fruits declined 1.2% m/m, prices
for sugar dropped 1.4% m/m. At the same time, prices for milk and eggs jumped
1.7% m/m and 0.7% m/m respectively.

Core inflation (the consumer basket excluding goods
and services with the most volatile prices) declined 0.3% m/m in December (a
0.1% m/m growth in November). Annual core inflation slowed to 3.9% yoy.

Evgeniya Akhtyrko: The
accelerated appreciation of the national currency by 3.2% in December resulted
in disinflation outweighing the traditional increase of consumer activity prior
to the holiday season. The appreciation of the exchange rate fostered the
decline of prices for items with a high share of imports, namely clothing,
footwear, gasoline and fruits. In addition, the decline of global prices for
energy resources prompted the government to lower tariffs for natural gas
consumed by households.

December’s deflation of consumer prices brought annual
inflation down to 4.1% yoy. This means that consumer inflation now is at the
lower end of the mid-term consumer inflation target range set by the National
Bank of Ukraine (NBU). This result calls for an accelerated softening of NBU’s
monetary policy revision, as the current key policy rate of 13.5% is too high
for the current economic situation. That said, we are likely to see a
significant revision in the forecast of key policy rate, which should be
published by the NBU next week.

We expect Ukraine’s consumer inflation in 2020 to
stay in the central bank’s mid-term target range of 4-5% yoy.