Page 26 - UKRRptMar19

Amid the growth, accelerated price declines for clothing and footwear (-4.6% m/m in January vs. -2.6% m/m in December) and transportation (-1.7% m/m in January vs. -1.6% m/m in December) served as restraining factors.
Core inflation (the consumer basket excluding goods and services with the most volatile prices) slowed to 0.3% m/m growth in January from 0.6% m/m in December. Annual core inflation slowed to 8.3% y/y.
“January consumer inflation was in line with our expectations. The hryvnia's appreciation by 0.5% in December, and mostly stable exchange rate in January, fostered the decline of prices for items with a high share of imports, namely clothing, footwear and gasoline,” Evgeniya Akhtyrko of Concorde Capital said in a note.
“In addition, seasonal sales amid enlarged supply also contributed to plunging clothing and footwear prices. Meanwhile, growing demand for food during the holiday season amid tighter supplies caused fruit and vegetable prices to surge. If January’s cooling annual inflation trend is maintained in February, the central bank is likely to cut its key policy rate by 0.5pp in March from 18.0% currently. We expect Ukraine’s consumer inflation to slow to 6.7% YTD in 2019 (from 9.8% YTD in 2018),” Akhtyrko added.
The National Bank of Ukraine (NBU) kept unchanged its consumer inflation forecast of 6.3% ytd for 2019 and 5% ytd for 2020, according to its quarterly inflationary report published on Feb. 7. Consumer inflation will drop to 6% – the upper end of the target inflation range – in the beginning of 2020, the NBU said.
Rising utility prices and wages will be the major inflationary factors, as they will increase production costs and foster consumer demand. However, the influence of these factors will be diminishing, the central bank believes.
At the same time, the NBU’s tight monetary policy, coupled with the government’s prudential fiscal policy, will counteract consumer inflation. Lower exchange rate volatility, and moderate price growth for imported goods, will also curb inflation.
The NBU also kept unchanged its forecast of real GDP growth. In 2019, Ukraine’s economy will slow to 2.5% y/y growth. In 2020, it will accelerate to 2.9% y/y growth and 3.7% y/y in 2021 as a result of transition to softer monetary policy and the revival of investment activity amid lowered political uncertainty.
The central bank also improved its forecast of gross international reserves, expecting them to be around $21bn in 2019-2020.
“A bit better-than-expected 2018 consumer inflation result empowered the NBU with more confidence in its vision on inflation trends. Meanwhile, the major assumption of the NBU’s forecast is continuing Ukraine-IMF cooperation, including IMF financial assistance of $2.5bn in 2019. If this assumption doesn’t hold, this forecast will be subject to drastic revision,” Evgeniya Akhtyrko of Concorde Capital said.
26 UKRAINE Country Report March 2019 www.intellinews.com