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Financial Market News

NBU November 2019 Inflation Update
13 December, 13:14

NBU November 2019 Inflation Update

In November 2019, consumer inflation declined sharply in annual terms to 5.1% (down from 6.5% in October).In monthly terms, prices grew by 0.1%. This is according to data published by the State Statistics Service of Ukraine (SSSU).

The November inflation slowdown was more significant than in the projected trajectory published in the NBU’s October 2019 Inflation Report.

The stronger hryvnia, coupled with lower global energy prices and expanded supply of certain foods, contributed to the deceleration in price growth. In particular, the stronger hryvnia led to a faster decline in core inflation and a drop in the cost of energy, as well as a number of goods with a significant import share in their production costs. These factors balanced out the pressure on prices from consumer demand and the poorer harvest of some vegetables.

As a result, inflation reached the target range of 5% ± 1 pp, coming close to the mid-term target of 5% set for the end of 2019.

Core inflation decelerated to 4.8% yoy (down from 5.8% yoy in October). The cooling inflation was primarily driven by the hryvnia strengthening against the basket of currencies of Ukraine’s trading partners (with the NEER up 16% from November last year), as well as by improved inflation expectations.

As the hryvnia strengthened, prices for nonfood products continued to decline (by 1.3% yoy). A large fraction of the goods in this group either are imported or have a large share of imports in their production costs. In particular, cars, clothing and footwear, computer equipment and home appliances, and personal care products became cheaper. The growth in prices for furniture and pharmaceuticals decelerated.

Prices for processed foods grew more slowly (by 6.1% yoy), mainly due to the stronger hryvnia and a bigger harvest of grains and oilseeds. Prices for pasta, flour products, canned food, fish and seafood, and chocolate increased more slowly, as did the prices of dairy products, in part because of a greater supply of imported goods. Inflation in meat product prices slowed as well, due to lower import prices.

Service prices grew more slowly (by 12.4% yoy). The prices of services with a high import share in their costs  – such as dry cleaning, women’s haircuts, and cinema tickets – grew at a slower pace. At the same time, prices for restaurant services, recreation, car maintenance, and financial institution services increased at a faster pace. Prices for personal care, personal vehicle insurance, and sports facility services continued to grow at fast rates, driven by steadily growing demand and rising salaries.

Raw food prices  grew more slowly (by 7% yoy, down from 8.8% yoy in October). More specifically, growth in vegetable prices decelerated as supply expanded. Prices for cabbage, carrots, onions, tomatoes, eggplants, peppers, and beets even fell. The growth in potato prices decelerated as well, but remained rapid. Prices for flour and cereals increased at a much lower rate due to the high grain yield. Among cereals, buckwheat was the only exception: its prices rose faster because of the smaller yield. Apple prices increased more rapidly, driven by the same factor.

The increase in administered prices decelerated (to 10% yoy in November). Natural gas prices for households increased in November compared to October, but remained 19.8% lower than a year ago. Fares for transport services, especially motor vehicle transport, increased more slowly, reflecting lower fuel prices. By contrast, prices for tobacco products rose more rapidly as supply contracted.

Fuel prices continued to fall (by 12.6% yoy) as the hryvnia appreciated and global oil prices dropped.

Taking into account actual inflation rates and price trends, the NBU expects that inflation at the end of the year will be substantially lower than projected (6.3%) and will likely remain within its target range (5% ± 1 pp). The 2020–2021 inflation trajectory will be updated during the planned quarterly revision of the macroeconomic forecast and will become public on 30 January 2020.

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