The National Bank of Ukraine Comments on the June 2017 Inflation Figures
As expected, headline inflation accelerated to
15.6% yoy in June 2017 from 13.5% in May. In monthly
terms, the CPI increased by 1.6%, according to data released by the State
Statistics Service of Ukraine (SSU).
Actual inflation came in above the NBU’s
projections, primarily
reflecting a faster-than-expected growth
in raw food prices and a persistently strong impact of administered
factors. Meanwhile, underlying inflation pressures remained moderate, broadly in line
with expectations.
·
Core inflation accelerated to 6.8% yoy in June
(stood at 0.2% mom). The acceleration in core inflation was driven by a further
increase in housing maintenance tariffs at a fast pace, as
well as secondary effects from rising raw food prices. The latter pushed
up prices for processed foods (to 8.4% yoy). Selected
service prices that are included in the core CPI (prices for health care,
recreational and cultural services, as well as prices for restaurants and
hotels) also accelerated. Meanwhile, a decline in
inflation expectations
amid the strengthening of the hryvnia
against the US dollar kept prices for imported goods virtually flat and contributed to the slowdown in the growth of
prices for clothes and footwear.
·
As
expected, raw food prices accelerated further. However, the pace of
increase (23.6% yoy and 7.2% mom) outperformed the
NBU’s projections. Prices for fruit and vegetables accelerated to 40.7% yoy and 29.0% yoy, respectively.
Apart from a partial crop loss (in particular, strawberry crops) due to
unfavorable weather conditions, the movements of prices for fruit and
vegetables continued to reflect changes in the SSU methodology for calculating
the CPI, which were introduced in early 2017.
In particular, the method of weighted averages was previously used as one
of the main methods for calculating prices for these products (when prices for early-
and late-harvested fruits and vegetables were weighted by the share of their
sales). From now on, prices for those products that prevail on the market are recorded in different seasons of the year. As a result,
a reflection of the seasonal factor for fruit and vegetable prices changed,
with prices tending to increase markedly in those months when early produce (in
particular, in May-June) or imported fruits and vegetables come to the market.
Conversely, prices tend to decline more substantially with the increased supply
of domestically produced fruits and vegetables.
In addition, prices for meat and milk accelerated further in annual
terms, driven by rising global prices and robust exports. As expected, prices
for eggs recovered in June as export restrictions on poultry-related products to some countries were
gradually lifted.
·
Growth of administered prices and tariffs accelerated to 28.8% yoy
(stood at 1.3% mom), primarily reflecting higher tariffs for cold water and sewerage
effective from May. In addition, prices
for tobacco products accelerated further due to ongoing distribution
difficulties. Meanwhile, the growth of prices for alcoholic beverages slowed
down further.
·
As
expected, fuel prices decelerated to 11.5% yoy
(were down by 1.0% mom) against the backdrop of lower global oil prices in the
previous months and favorable FX market conditions.
The NBU expects these effects to be largely offset in the latter half of 2017. However,
current developments of the CPI and its components point to the further
heightened risks for achieving the year-end headline inflation target for 2017.
