March Inflation Comes in at 2.3% YoY, Not Yet Reflecting Quarantine Shock

April 14, 2020

Ukraine’s headline consumer inflation stood at 2.3% in March, ticking down by 0.1 p.p. from the 2.4% registered in February, according to State Statistics Committee data published last week. On a month-on-month basis, the CPI rose by 0.8%, driven by cost increases for imported goods amid the hryvnia devaluation in the period.

The CPI figures for March do not yet reflect the pricing turbulence for food products which appeared after the government imposed the nationwide quarantine on Mar 17, as it took up to a week for the full effect of the harsh restrictions to be felt; we will need to wait for the April data to get a full picture of the situation. UkrStat’s food price index grew by only 0.4% MoM in March, although clothing prices surged by 12.8% MoM. A drag on the expected rise in inflation was the March plunge global oil prices, which drove lower energy costs in Ukraine. The official aggregate price index for petroleum products declined by 1.7% MoM, heating/hot water costs decreased by 5.2% MoM and natural gas prices for households fell 11.6% YoY in March.
The government’s newly-revised macro forecast for 2020 foresees consumer inflation accelerating from the 2019 multi-year low of 4.1% to 11.6%. Among other key indicators, Ukraine’s GDP is now projected to contract by 3.9% this year, in contrast to the initial forecast of economic growth of 3.7%. We believe the contraction will be significantly larger than the government forecast (based on a period of economic shutdown lasting 15% or more of the year), but it is too soon to make a precise estimate. The government’s forecast of the unemployment rate increasing from 8.1% to only 9.4% also looks out of touch with reality, considering that many Ukrainians working abroad have returned back home due to the European quarantine and will have difficulty finding work.

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