Ukraine CPI slows to 0.1% m/m in May

Ukraine’s consumer price inflation slowed to 0.1% m/m growth in May (7.5% yoy) from 3.5% m/m (9.8% yoy) in the prior month, according to state statistics released on June 8. The main factors were modest food price growth (+0.2% m/m), as well as sliding utility prices (-2.0% m/m). Prices for clothing and footwear were unchanged in May compared to 1.7% m/m growth in April. The growth in prices for healthcare services also slowed slightly to 0.6% m/m (from 0.7% m/m in the prior month). Transportation prices sped up 2.8% m/m (from 2.4% m/m in April) and education prices rose 0.7% m/m (from 0.3% m/m).  

Alexander Paraschiy: May inflation was close to our estimate. Still, we did not anticipate utility rates to start falling, especially after the Cabinet decided to increase natural gas prices for households from May 1. However, the devil appears to have been in the details. Recall in April, the statistics office reported a 48% surge in retail natural gas prices, which stemmed from the exhaustion of “limited social discounts”. Namely, each household using gas for individual heating was granted a 50% discount for gas in the limited amount of 1,200 cm for six month starting in October 2015. Yet by April, most of the privileged households (which were the dominant consumers of natural gas in the winter season) exhausted their limits and had to pay the full price for gas (UAH 7.19/cm). As of May 1, the price of gas for all households was set at UAH 6.88/cm, or 4.3% below the discount-free price of April.

We overestimated the extent of gas price discount use in April. Nevertheless, we do not see this overestimation as critical. The general trend is in line with our view and thus we are keeping our initial CPI forecast unchanged at 10.5% YTD (+14.5% yoy) for 2016.