Page 27 - UKRRptDec18

The IMF-advocated 23.5% hike in household gas rates and a related increase in heating prices will be a significant one-off that will contribute up to 1pp to annual inflation over the long-run. Against this backdrop we now expect end-2018 inflation at close to 10% (up from our current forecast of 8.9%).
4.2.1 CPI dynamics
Ukraine’s inflation rose to 9.5% in October y/y, up from 8.9% a month earlier, Ukrstat reported on November 11.
In monthly terms inflation was up by 1.7% in October over the month earlier, against the 1.9% increase in September over August.
Inflation is beginning to fall thanks to tough action by the National Bank of Ukraine (NBU), which has hiked interests rates twice this year.
The NBU kept its key policy rate on hold at 18% at the October meeting following its increase by 0.5 percentage points (pp) from September 7 . "The current and forecast monetary conditions are sufficiently tight to bring inflation to its medium-term target of 5% in 2020," the central bank' statement said.
Food prices grew 1.4% m/m (after 1.6% m/m growth in September), mostly due to a seasonal increase in the prices for vegetables (8.8% m/m), bread (2.7% y/y), and milk (3.6% y/y). At the same time, prices for fruits continued to decline, falling by 4.6% m/m. In addition, prices for sugar dropped 2.3% m/m.
Prices for clothing and footwear added 2.6% m/m in October (after surging 8.6% m/m in September). Prices for transportation advanced 3.1% m/m (after 2.8 m/m in September) mostly due to a fuel price surge. In addition, prices for alcohol and tobacco increased 2.3% m/m and continued to adjust to a hiked excise duty.
Core inflation (the consumer basket excluding goods and services with the most volatile prices) slowed to 1.3% m/m in October from 1.9% m/m in September. Annual core inflation declined to 6.9% y/y from 8.7% y/y.
Ukrainian inflation will drop into single digits next year for the first time since 2013 , thanks to tough monetary policy and cautious fiscal policy supported by the International Monetary Fund, a Reuters monthly poll showed on November 6. According to the median forecast of 15 analysts polled by Reuters, inflation will slow to 7.5% in 2019 from 10.0% expected at the end of 2018 and 13.7% in 2017.
27 UKRAINE Country Report December 2018 www.intellinews.com