Page 26 - UKRRptDec18

4.2 Inflation
Prices 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F
CPI headline (%YoY, 16.6 22.3 12.3 9.1 4.6 -0.2 0.5 24.9 43.3 12.4 13.7 9.4 eop)
CPI headline (%YoY, 12.8 25.3 16 9.4 8 0.6 -0.3 12.1 48.5 14.9 14.5 9.2 average)
PPI (%YoY, eop) 23.2 21.1 15.3 18.8 17.4 0.4 1.7 31.8 25.4 35.7 16.5 9
PPI (%YoY, 20.5 33.6 7.4 21.4 19.9 6 -0.1 17 36.5 20.4 27.2 10.6 average)
Source: ICU, CEIC
The National Bank of Ukraine (NBU) revised upward its 2018 inflation (CPI) forecast to 10.1% YTD from 8.9% YTD due to fast growth of global prices for wheat and energy resources, as well as faster-than-expected wage increases in Ukraine, as stated in the central bank’s quarterly inflationary report published on November 1.
This revision postpones the achievement of the NBU’s inflation target range of 4-6% to the beginning of 2020 instead of end-2019, as had been projected in July’s report.
Inflation in Ukraine will drop next year to a single figure, for the first time since 2013 , according to 15 analysts surveyed by Reuters. Due to tight monetary and fiscal policies that meet the IMF requirements, inflation could fall to 7.5% from 10% expected for 2018, and 13.7% recorded last year.
Consumer inflation will reach 6.3% y/y in 2019 , according to the NBU, while the mid-term target of 5% will be reached by the end of 2020.
CPI to accelerate by end-2018 on strong private demand. Inflationary pressures remain elevated as CPI came in at 8.9% y/y in September (down from 9.0% in August), still growing faster than we had expected. Both fundamental factors and one-offs remain at play.
Growth in nominal salaries continues to hover above 20% y/y – a direct result of the fierce competition for qualified and unqualified labour. Surging salaries are adding to price pressures in many service segments.
Demand-side pressures are manifested through an elevated core inflation – 8.7% y/y at end-September. Additionally, more expensive global crude oil (before the price reversal of recent weeks) spilled into the local market, pushing fuel prices (almost 4% of the consumer basket) up 5.4% m/m and 22.7% y/y.
Looking ahead, we expect demand-side pressures to persist over at least the next two quarters, however, a deceleration in salaries looks inevitable though to end-1H19.
26 UKRAINE Country Report December 2018 www.intellinews.com