Ukraine Headline Inflation Slows Sharply to 2.4% in February

March 16, 2020

Rolling 12-month consumer inflation in Ukraine slowed to a new multi-year low of 2.4% in February after 3.2% in January and 4.1% in December, according to State Statistics Committee data published last week. The CPI declined on a monthly basis by 0.3% in the period mainly on lower energy prices.

Consumer inflation in Ukraine has been sharply decreasing since mid-2019, when it stood at a level of 9.0% YoY. However, we suppose that February could be the low-water mark for the domestic CPI index, given that global economic pessimism beyond Ukraine’s control has seen the hryvnia devalue by some 10% against the major hard currencies over the past 3 weeks. Although the current economic conditions are starting to look very challenging amid risks of global recession, the large decline in oil prices should be a positive factor in helping the National Bank to stay close to its forecast of inflation of 4.8% for full-year 2020. Also working in favor of macroeconomic stability are the NBU’s solid reserves of near USD 27 billion, which should allow the central bank to keep any decline in the hryvnia to a manageable level.
On a month-on-month comparison basis, the utility sector prices declined by 2.0% and the aggregate food price index edged down by 0.4% in February. Meanwhile, prices in the healthcare sector rose by 0.5% MoM and telecommunication service prices grew by 0.3% MoM.
The lower pace of inflation in February and signs of economic slowdown prompted the National Bank to cut its key refinancing rate by 100 bps from 11.00% to 10.00% on Thursday (Mar 12). The central bank continues to aim for a key rate in the range of 7%, and said it will be ready to act with further monetary easing if needed. We had anticipated that the key rate would be lowered to 9.50%.
The next meeting of the NBU Board on monetary policy issues is due on Apr 23.

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