Ukraine consumer inflation slows to 1.7% yoy in May

Ukraine’s consumer inflation slowed to 1.7% yoy in May
from 2.1% yoy in the prior month, the State Statistics Service reported on June
9. Consumer prices increased 0.3% m/m in May (vs. 0.8% m/m in April), mostly
driven by food, alcohol and tobacco prices.

Food prices rose 1.2% m/m in May (after climbing 2.1%
m/m in April). In particular, prices jumped for fruits (15.8% m/m), eggs (9.4%
m/m), sugar (16.6% m/m) and bread (0.7% m/m). In addition, prices for alcohol
and tobacco climbed 1.1% m/m. At the same time, prices for meat declined 1.6%
m/m, while prices for sugar slid 0.8% m/m.

Meanwhile, prices for clothing and footwear declined
1.4% m/m (after increasing 0.4% yoy in April).  Prices for housing and
utilities continued to decline, losing 2.8% m/m (vs. a 3.2% m/m decline in
April) mostly due to a plunge in natural gas prices by 16.8% m/m. In addition,
prices for transportation fell 2.0% m/m, which was driven by sliding prices for
fuel and lubricants that lowered prices for railroad transportation.

Evgeniya Akhtyrko: Declining
global energy prices helped to cool Ukraine’s consumer inflation, particularly
in housing and transportation. The drop in prices for clothing and footwear was
likely the result of sluggish consumer demand, as well as a 1.5% monthly
hryvnia appreciation, which affected the pricing of imported items. Meanwhile,
the inflation of food prices remains relatively high, mostly as a result of
seasonal spikes for some items.

We expect consumer inflation will accelerate to 6% YTD
in 2020 (vs. 4.1% YTD in 2019). However, this estimate might be too high as an
expected increase in the budget deficit will not result in a significant money
injection into the consumer market.