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warning that a number of factors could pose a threat to inflation decreasing to the target level.
4.2.1 CPI dynamics
Ukraine’s consumer prices dropped 0.7% m/m in July owing to food and clothing, whose prices declined for the third straight month, the State Statistics Service reported on August 9.
Annual inflation slowed to 8.9% y/y from 9.9% y/y in June. The decline in food prices accelerated to 1.9% m/m (after a 0.5% m/m decrease in June), mostly due to a seasonal decline in prices for fruits (-11.1% m/m) and vegetables (-12.4% m/m). Prices for eggs (-7.6% m/m) and milk (-1.1% m/m) also continued to decline. Clothing and footwear prices decreased 4.6% m/m (after a 2.4% m/m drop in June). Other consumer prices grew, led by alcohol and tobacco, which added 1.8% m/m in July (after 1.6% m/m growth in June). Prices for transportation increased 0.7% m/m (after 0.6% m/m in June). Utility prices climbed 0.5% m/m, while prices for household durables inched up 0.2%. Core inflation (the consumer basket excluding goods and services with the most volatile prices) slid 0.1% m/m in July, after staying flat m/m in June. Annual core inflation slowed to 8.8% y/y growth from 9.0% y/y in the previous month. July's deflation, fuelled by cooling prices for widely consumed foods, is a positive surprise for the economy. It provides a “safety cushion” to get through the fourth quarter, when we expect consumer prices to swell again due to higher utility bills (especially natural gas and heating prices) and a seasonal decrease in food supply. Given the current price trend, our projection of consumer inflation at 8.9% YTD, or 11.8% y/y in 2018, looks quite attainable.
20 UKRAINE Country Report September 2018 www.intellinews.com