Ukraine Headline Inflation Stays Near All-Time Low at 2.5% in August

September 14, 2020

Ukraine’s rolling 12-month “headline” consumer inflation inched up to 2.5% in August from 2.4% in July, according to State Statistics Committee data published on Sept 9. In August alone there was a deflation of 0.2% MoM after deflation of 0.6% in July and inflation of 0.2% and 0.3% MoM in June and May respectively.

There was a traditional seasonal monthly deflation seen in both August and July due to lower prices for agricultural produce food staples. The aggregate food price index declined by 1.5% MoM in August while on a yearly basis it was up by 2.3%. One support factor for low consumer prices last month was stable hryvnia in the period, as the national currency strengthened by 0.5% against the dollar to 27.55 UAH/USD. Pessimistic forecasts that the exchange rate could jump to 30 UAH/USD by the year-end have thus far failed to materialize. Currently, our expectation is that the hryvnia will finish the year at 28.50 UAH/USD, as the country has enough foreign reserves (USD 29.1bn as of Sept 1) to overcome potential short-term speculative turbulence on the currency market. The National Bank bought a total of USD 460mn last month on the interbank currency market and did not intervene to sell foreign currency. The country’s forex reserves now cover 4.8 months of future imports - sufficient for the government and the National Bank to conduct all necessary transactions, including those relating to foreign debt servicing.

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