Ukraine: Inflation continues to escalate in April, NBU to target inflation by mid-2015
May 7, 2014
In April, consumer prices increased 3.3% over the previous month, which was up from the 2.2% rise registered in March and represented the largest monthly increase since March 2008. The increase was broad-based in April, with all the components of the index rising over the previous month. The largest increases were registered in transport (due to the rise in prices for fuels and lubricants), health and food and non-alcoholic beverages.
Annual inflation jumped from March's 3.4% to 6.9% in April, which marked the highest rate since August 2011. As a result of the acceleration in recent months, along with developments in the political sphere and in the foreign exchange market, inflation is now above the Central Bank's 4.0%-6.0% target range for 2013-2014. Meanwhile, annual average variation in consumer prices increased from March's 0.3% to 0.9% in April.
In the Staff Report of the Stand-by Arrangement (SBA) that Ukraine reached with the International Monetary Fund (IMF), the IMF commented on the country's inflation prospects as well as on the stance that the National Bank of Ukraine (NBU) will take as part of the two-year SBA plan.
The IMF said that the monetary policy stance would tighten in the second half of this year and that it, “[...] will bring inflation down in 2015, after an initial increase during 2014-driven largely by significant pass-through from the exchange rate depreciation and energy tariff adjustments. Effective policy interest rates are expected to stay positive in real terms throughout the program.”
Moreover, the IMF elaborated on the future adoption of inflation targeting by the NBU, which is expected to start by mid-2015, and added that, "with technical assistance from the IMF, the NBU will prepare by end-June 2014 a clear timetable for completing the remaining preparations for adoption of inflation targeting. This transition will be facilitated by the planned fiscal consolidation (to reduce fiscal dominance) and steps to strengthen NBU independence, accountability and policy communications [...]. Under the new anchor, the NBU will target 3-5 percent inflation over the medium-term.”
Against this backdrop, FocusEconomics Consensus Forecast panelists expect inflation to end 2014 at 10.7%, which is up 1.3 percentage points from last month's forecast. For 2015, the panel sees inflation easing to 7.0%.