Ukraine’s consumer price inflation (CPI) ticked up in 2017 to 13.7% as expected compared with 12.4% in 2016, after the government doubled the minimum wage earlier in the year.
Inflation has come down from crisis-driven highs of 43.3% in 2015 and 24.9% in 2014, according to the State Statistics Service of Ukraine, but remains elevated.
The National Bank of Ukraine (NBU) was forced to hike its monetary policy rate in December by 1pp to 14.5% after several rounds of easing to address growing inflationary pressures as the year drew to an end.
The regulator was targeting inflation of 12.2% for 2017 but rising food prices also contributed to inflation. In October, the regulator also increased its key policy rate by 1 pp to 13.5%. In September, the NBU left its key policy rate unchanged at 12.5% due to the need "to return inflation to the target path". In late May, the NBU cut its key policy rate by 0.5pp to 12.5%.
The NBU has been fighting a losing battle with inflation in the last quarter. November’s CPI was 13.6% y/y in November from 14.6% in October. In monthly terms in December 2017 alone, inflation was 1% against 0.9% in November and 1.2% in October, it said. The average annual inflation in 2017 increased to 14.4% from 13.9% a year earlier.
The result will disappoint as while inflation has come down significantly the regulator started the year targeting 8-8.1% in 2017. In general while Ukraine has clearly emerged from its collapse of a few years ago the economy has not bounced back as strongly as the government was hoping. Already in May the government was forced to revise its inflation forecast from 8% to 11.2%, and the National Bank’s inflation forecast given in late October was 12.2% instead of earlier predicted 9.1%.
The inflation forecast for 2018 is better, but this too has been revised upward, albeit by less: the forecast has been changed to 7.3% from 6.0% earlier, according to the NBU. The national budget for 2018 that was approved in December has pencilled in a revised inflation figure of 9%, up from earlier estimates of 7%.