Ukraine’s consumer prices growth slowed, rising by 0.9% m/m (14% y/y) in February, following a 1.5% m/m (14.1% y/y) in January, according to the Ukrstat state statistics agency in Kyiv.
Food price growth decelerated to 1.0% m/m in February, following 2.0% last month, while another major driver - transportation prices - increased by 1.5% m/m growth from 3.0% m/m in January. Utility prices increased 0.4% m/m in February, showing the same growth pace as in the prior month. Prices for clothing and footwear declined 2.8% m/m, continuing the downward trend (-3.9% m/m in January).
February's result was attributed to high inflationary dynamics throughout the previous year, Evgeniya Akhtyrko at Kyiv-based brokerage Concorde Capital wrote in a note to clients on March 12.
"The absence of significant changes in core inflation implies that the current inflation is caused by both monetary and non-monetary factors," she added. "Having expected February’s results, Ukraine’s central bank further tightened the monetary conditions by hiking the key policy rate by by 1%age point (pp) to 17% from March 2, hoping to alleviate the monetary factors of inflation."
The rate hike is reasonable as inflation risks in Ukraine do not tend to subside, the regulator said in a statement published on March 1."The hike is aimed at lowering headline inflation to meet the target over the medium term," the National Bank of Ukraine (NBU) added in a statement.
In a separate statement published on March 12, the NBU said, "monetary conditions are still quite tough to ensure a gradual decline in consumer inflation and its return to the target range in mid-2019".
The regulator added that inflationary pressure's strengthening in February was counteracted by the strengthening of the hryvnia, which continues in the first half of March and is caused, among other things, by a tight monetary policy.
Meanwhile, members of the NBU's monetary policy committee believe that "if the refinancing rate is raised to 17%, the need for its further increase in April is not obvious," according to the committee's minutes its late February meeting, published recently by the regulator's media office.
"The key policy rate of 17% leaves a significant gap to the February’s consumer inflation of 14% y/y," Concorde's Evgeniya Akhtyrko wrote in a research note on March 13. "So far, we do not see risks of inflation accelerating during 2018."
That said, we see only very negative developments in Ukraine's talks with the International Monetary Fund (IMF) regarding the next loan tranche will prompt the NBU to resort to another key policy rate hike in the next meeting scheduled for April 13, she added.