Inflation slows to 9.1% in 2010, from 12.3% in 2009

Consumer inflation slowed marginally to 9.1% y-o-y in December, from 9.2% y-o-y in November, according to fresh data released from the State Statistics Committee. The 9.1% inflation in 2010 marks deceleration from 12.3% in 2009. Mykyta Mykhaylychenko: We expect inflation to stay within 9%-10% through 2011 as well. Firstly, consumer inflation in 2011 will be boosted by the government increasing oil excises, retail gas tariffs by another 50% in April 2011 and utilities throughout the year, according to commitments to the IMF. Apart from that, the broader economic recovery, and domestic household demand in particular, and high PPI growth (18.8% in 2010 vs. 14.4% in 2009) create additional inflationary pressure. Inflation in the high single-digits also sets a floor on UAH interest rates and keeps the UAH exchange rate more vulnerable should the global economic and financial situation deteriorate abruptly. It may also induce the central bank to continue sterilizing excessive liquidity from banks, effectively discouraging them from more active lending.