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Financial Market News

NBU September 2019 Inflation Update
10 October, 15:30

NBU September 2019 Inflation Update

In September 2019, consumer inflation declined in annual terms – to 7.5%, down from 8.8% in August. In monthly terms, prices grew by 0.7%. This is according to data published by the State Statistics Service of Ukraine (SSSU).  Actual inflation was below the projections (7.7%) published in the NBU’s July 2019 Inflation Report. Core inflation, as well as administered prices and fuel prices, grew slower than expected in September, primarily thanks to the continued appreciation of the hryvnia. That has outweighed the impact from raw food prices that kept growing faster than expected.

Core inflation continued to decline, coming in at 6.5% yoy in September. The tight monetary policy remained a strong factor in holding back underlying price pressures, in particular through the exchange rate channel.

This was mostly reflected in the prices of nonfood products with a high import share in their cost. The rise in their prices decelerated (to 0.4% yoy). In particular, price growth was slower for furniture, textiles, office supplies, pharmaceuticals, jewelry, bicycles, and other goods. Prices of clothing and footwear remained at last year’s level. Cars, home appliances, and computer equipment became cheaper.

The pace of growth in the prices of processed foods also slowed (to 8.4% yoy). Slower growth was seen in prices of bread, meat products, pasta, chocolate, caramel, and baby food. Rice and dried fruit were even cheaper than one year ago. Prices of dairy products were an exception, continuing to grow rapidly on the back of a decrease in supply of raw milk and steady demand for high-quality milk. The rise in prices for services also decelerated (to 13.1% yoy) as FX markets were favorable and wages grew somewhat slower. Services prices with a high import share in their cost grew at a slower pace – namely, the prices for dry cleaning, repairs, telecommunications, services of cinemas and restaurants, manicure, outpatient services, excursions, and travel. At the same time, robust consumer demand supported high growth rates in services prices. More specifically, prices for insurance services, financial services, and housing rental grew at a faster pace.

The growth in raw food prices decelerated, to 8.6% yoy. An increase in supply caused the growth in the prices of most vegetables, including onions, beetroot, cabbage and tomatoes to decelerate. Meanwhile, prices for carrots, cucumbers and sweet peppers were even lower than last year. As last month, potato prices bucked the trend – more than doubling compared to September 2018 in the wake of a poorer potato harvest.

Price slowdown was broad-based across animal farming products, in particular for all types of meat and milk, while egg prices declined further. The growth in flour prices decelerated, due to, among other things, the bumper wheat harvest. Meanwhile, fruit prices rose at a faster pace, driven by a poorer harvest of apples and more rapid growth in the prices of citrus fruit.

The growth in administered prices continued to slow, to 14.1% yoy. Gas prices for households decreased, owing to a drop in global gas prices and June changes to the methodology for calculating gas prices for households. Weaker growth was also recorded in the prices of alcoholic beverages, pre-school education, cold water supply and sewage, and postal services. Conversely, the growth in tobacco product prices sped up, reflecting the increase in the excise tax that came into effect from 1 July.

Fuel prices continued to fall (by 8.2% yoy), driven by a drop in global oil prices and favorable conditions in Ukraine’s FX market.

The actual inflation figures show that inflation pressures are weakening, due to, among other things, the NBU’s tight monetary policy, which had the strongest impact on inflation through the hryvnia exchange rate channel. The impact of vegetable supply factors that significantly deviated inflation from its target in previous periods is also diminishing. The NBU will release its updated inflation forecast, together with a new macroeconomic forecast, on 24 October 2019 during a press briefing on the decisions made by the NBU Board at its meeting on monetary policy issues. The Inflation Report, scheduled to be published on 31 October this year, will describe the updated forecast in greater detail.

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