On Inflation in October 2019

On Inflation in October 2019

According to the State Statistics Service of Ukraine, in October 2019, the overall consumer prices increased by 0.7% compared to the previous month (by 0.7% in September). In the 10 months since the beginning of the year prices have increased by 4.2%.

The main impact on the monthly inflation rate in October was made by the 0.9% increase in the prices for food and non-alcoholic beverages (the contribution was 0.4 percentage points). Particularly, vegetables went up by 4.6% a month (due to a crop failure of potatoes), eggs – by 9.6%, etc.

The rise in prices for the telecommunication category by 4.2% (Figure 1) was the result of the launch of new tariffs by Kyivstar mobile operator from October 1.

A decrease in housing and communal services prices by 0.4% was solely due to a 4.3% decrease in natural gas prices. All other services (except electricity) went up moderately. The decrease in prices for the category “transport” was due to a decrease in the cost of rail passenger transport services by 5.3% and fuel by 0.1%.

The annual inflation rate (year-on-year change) in October decreased to 6.5% from 7.5% in September. Since the beginning of the year, inflation has slowed by 3.3 pp (Figure 2).

The following factors have led to a decrease in inflation:

- revaluation of the hryvnia due to the inflow of speculative capital for investment in domestic government bonds. Beginning in July, annual rates of devaluation are in the negative range (Figure 2), i.e. the hryvnia is strengthening;

- a reduction of world energy prices: as of the end of October, the price of Brent crude oil decreased by 15% year-on-year, the German hub NCG natural gas price – by 56%;

- a rapid decrease in the growth rate of producer prices. In October, the annual growth rate of producer prices was 0.2% compared to 14.2% at the beginning of the year (Figure 2). In particular, in the mining industry prices for the current year decreased by 12.7%, processing – by 4.6% and only prices in electricity, gas, steam and air conditioning supply increased by 15.3% (due to the introduction of the electricity market in July). The decrease in prices in the mining and processing industries, on the one hand, was caused by a deterioration in the price conditions in the commodity markets and, on the other hand, by a stagnation of industrial production, specifically due to the actual lack of credit.

The decisive factor in the price conditions of the consumer market in the near future will remain the situation in the currency market. If the exchange rate in relative terms is stable, the inflation rate for 2019 may be close to the NBU forecast (6.3%).

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