Ukraine’s Consumer Inflation Remains at 10.2% YoY After August Data

September 13, 2021
 

News
Ukraine’s State Statistics Committee (UkrStat) said that 12-month “headline” consumer inflation remained at 10.2% for August after the same figure for July. On a monthly basis, the consumer price index edged down by 0.2% in August. UkrStat reported that food prices grew by 11.7% YoY in August, and that utility service prices jumped by 29% YoY as the natural gas price for households doubled amid skyrocketing gas prices in Europe, which reached a new historical high of USD 700 per 1,000 cubic meters. In other inflation basket categories, healthcare services went up in price by 5.5% YoY.


Commentary
As we had forecasted, the National Bank decided to increase its key policy rate from 8.0% to 8.5% last Thursday (Sept 9) in a response to accelerating inflation pressure. The key rate has risen from 6.0% to 8.5% since the start of this year. The tighter monetary policy is aimed at reining in inflation expectations and bringing price growth back toward the 5% target for 2022. Wages continue to rise at a fast pace in the country, with the rapid growth in household income supporting domestic demand. This is evidenced, among other things, by the sharp pickup in retail trade (+13% YoY in 7M21) and high demand for durable goods.
The next meeting of the NBU Board on monetary policy issues is scheduled for Oct 21. We forecast that the key rate will be put on hold at 8.5% in October. Meanwhile, we think that the Finance Ministry will be forced to increase its offered yield for 1-year UAH treasuries by 50 bps to 11.65% to raise more money on the domestic market. Separately, the National Bank admitted that it sees major risks to the economy in the potential declaration of much tighter quarantine measures in Ukraine and worldwide, and a longer and stronger-than-expected surge in global inflation.


 


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Dmitry Churin, Head of Research, d.churin@eavex.com.ua