Ukraine consumer prices rise 0.7% m/m in May

Ukraine’s consumer inflation increased 0.7% m/m in May
after rising 1.0% m/m in April, driven mostly by prices for food and
transportation, the State Statistics Service reported on June 10. Annual
inflation accelerated to 9.6% yoy from 8.8% yoy in April.

Food prices grew 1.0% m/m in May (vs. 1.4% m/m growth
in April), driven by fruits (11.9% m/m), meat (1.7% m/m) and bread (1.4% m/m).
At the same time, egg prices declined 15.3% m/m, and milk prices dropped 1.8%
m/m.

Prices for transportation increased 1.5% m/m (vs. 1.0%
m/m growth in April), driven mostly by prices for gasoline and lubricants (4.0%
m/m growth). In addition, prices for alcohol and tobacco grew 1.3% m/m.

Consumer inflation in May was restrained by prices for
clothing and footwear which declined 1.5% m/m (vs. 1.9% m/m growth in April).
In addition, prices for housing and communal services declined 0.7% m/m (vs.
1.0% m/m growth in April) due to a 4.2% m/m price drop for natural gas.

Core inflation (the consumer basket excluding goods
and services with the most volatile prices) slowed to 0.2% m/m growth in May
from 0.4% m/m in April. Annual core inflation stayed unchanged at 7.4% yoy.

Evgeniya Akhtyrko: May’s surge
in consumer prices exceeded all expectations. Usually, the month of May
commences a period of disinflation, driven by slowing growth in food prices. As
with the April demand for vegetables, May’s inflation was mostly due to a price
surge for one food product. Most likely,
the price jump for fruits was caused by a disproportion between increased
consumer demand (fueled by income growth) and restricted supply.

The May surge in yoy inflation undermines Ukraine’s
central bank forecast of 2019 consumer inflation at 6.3% YTD. We are likely to
see a revision of this forecast in the central bank’s quarterly inflation
report to be released in July. As we previously wrote, the National Bank of
Ukraine is likely to suspend its cycle of monetary softening in order to avoid
unleashing inflation.

We revise our consumer inflation forecast for 2019
to 7.4% YTD (from 6.8% YTD previously).