News
11.06.2009
Ukraine saw 7.4 percent inflation in January-May 2009
Ukraine's consumer price index (CPI) edged up 0.5% month-on-month (m/m) in May, the State Statistics Committee announced, slowing down from 0.9% m/m in April and still higher monthly rates of 1.4-2.1% in the first quarter. Annual inflation reached a 19-month-low at 14.7%, less than half the peak of exactly a year ago (31.1%). Food prices rose by only 0.3% on the month in May, showing huge variation among individual items; while prices for eggs and milk products decreased markedly, prices for sugar, meat, poultry and vegetables bounced. Other driving factors in May have been motor fuel (+2.5% m/m) and healthcare costs (+0.9% m/m). On another note, the Statistics Committee announced that producer prices declined 0.7% m/m in May, triggering a fall in y/y producer price inflation from 6.4% in April to just 1.9% in May.
Producer prices will almost certainly deflate y/y from June. At least manufacturing prices have stabilised in May (+0.1 m/m), while the key downward pressure came from wholesale electricity tariffs, which fell 4.5% on the month, while prices in the mining and quarrying category fell 0.4% m/m. Manufacturing prices have been mostly driven by higher prices for refined oil products (+4.3% m/m), whereas prices in the key metallurgical sector declined again (-0.8% m/m).
Significance:The increase of consumer prices in May has been less than expected and is therefore good news for the Ukrainian market and policymakers. Nevertheless, inflation remains too high and has to be brought down further, not least because the financial sector and bank lending in particular will otherwise hardly gain traction again. Credit conditions are extremely tight and interest rates have remained very high. Meanwhile, falling prices for metallurgical products signal that a recovery in this key sector of Ukraine's economy can still not be expected, which is surely dampening hopes for rebound early on. Increases of administratively controlled prices as well as tax rate increases in July will continue to fuel inflation during the second half of the year, and we therefore project consumer price inflation to broadly remain at the May level until year-end at least, before declining further in 2010.
Global Insight
