Page 26 - bne IntelliNews Country Report: Ukraine Dec17

upward revision of pensions (+23% on average since October) and minimum wages (expected one-off increase of 16% since the start of 2018).
Salaries in the private sector are being driven higher by competition for quality labour . All of this adds up to stronger demand and the consequent inflationary pressures. A pick-up in core inflation to 8.1% at the end of October underscores that pull factors will be an issue in 2018.
In response to that outlook, the NBU increased the key policy rate by 1pp to 13.5% in late October . We see inflation decelerating to 12.7% by end-2017. The probability of a CPI slowdown to within the NBU’s 2018 target range of 6% +/-2pp is high, as long as monetary policy remains tough and no external shocks occur.
4.2.1 CPI dynamics
Ukraine’s consumer price inflation decelerated to 14.6% y/y in October from 16.4% y/y in September on the back of a strong base effect (there was a significant hike in tariffs in October 2016). Compared to the previous month prices went up by 1.2% m/m, Raiffeisen Bank International (RBI) reported.
Food prices increased by 1.1% m/m owing to the reduction of supply of some products to the domestic market. Alcohol and tobacco prices increased by 1.3% m/m.
“Hryvnia devaluation and seasonality resulted in growth of clothes prices by 2.4% m/m in October. Moreover, FX market pressure and growth of global prices led to increase of oil and fuel prices by 4.4% m/m. There were no significant changes in the communal tariffs (+0.5% mom). Given unexpectedly high price growth in September, we see a significant risk for our current forecast of 11% y/y by the end of 2017,” RBI said in a note.
26 UKRAINE Country Report December 2017 www.intellinews.com