Ukraine consumer inflation slows to 5.1% yoy in November

Ukraine’s consumer inflation slowed to 5.1% yoy in
November from 6.5% yoy in October, with monthly inflation decreasing to 0.1%
m/m in November from 0.7% m/m in October, the State Statistics Service reported
on Dec. 9.

Monthly inflation in November slowed due declining
prices for food, transportation, as well as clothing and footwear. Food prices
declined 0.1% m/m in November (vs. 0.9% m/m growth in October), driven mostly
by fruits (-4.4% m/m), sugar (-2.5% m/m), and meat (-1.0% m/m). At the same
time, prices for eggs jumped 2.4% m/m and vegetables grew 1.5% m/m. Prices for
clothing and footwear declined 1.4% m/m (after 1.9% m/m growth in October). In
addition, prices for transportation declined 0.3% (vs. 0.7% m/m decline in
October) due to falling prices for gasoline.

At the same time, prices for utilities and home
maintenance advanced 2.8% m/m (after a 0.4% m/m decline in October), driven
mostly by a jump in electricity prices by 12.7% m/m.

Core inflation (the consumer basket excluding goods
and services with the most volatile prices) also rose 0.1% m/m in November (vs.
a 0.7% m/m increase in October). Annual core inflation slowed to 4.8% yoy from
5.8% yoy in October.

Evgeniya Akhtyrko: The
slowdown in consumer inflation in November exceeded all expectations.
Apparently, the continuous appreciation of the national currency fostered a
decline in prices for imported consumer goods and gasoline.

Much weaker than expected consumer monthly inflation
in November brought annual inflation down to 5.1% yoy. This means that annual
inflation has actually reached the target of 5.0% set by the National Bank of
Ukraine (NBU) that was supposed to have been attained by 4Q20. This result will
compel the NBU to reinforce its monetary softening.

The current key policy rate of 15.5%
is prohibitively high for the current economic situation. Therefore, we expect
the NBU to lower its key policy rate by at least 1.5pp (and up to 3.0pp) during
the monetary policy board meeting to be held on Dec. 12.

Due to a faster-than-expected inflation slowdown in
November, we are revising downward our 2019 CPI forecast to 5.1% YTD in 2019
(vs. 9.8% YTD in 2018).