Ukraine’s 12-Month Inflation Jumps to 8.5% After March Data

April 12, 2021

Rolling 12-month consumer price “headline” inflation in Ukraine reached 8.5% after the March data release on Apr 9, according to the State Statistics Committee’s publication. As was reported earlier, inflation in Ukraine accelerated to 7.5% in February after coming in at 6.1% YoY in January and 5.0% in December. In March alone, the CPI rose by a significant 1.7% on a month-on-month basis.

The actual inflation pace this year is clearly out-running the base case scenario forecast, with a trend emerging of a roughly 1% rise in Ukraine’s headline inflation figure each month for the last half year. This trend is in line with the European and US economies, where enormous rounds of monetary creation and fiscal stimulus are fueling a rebalancing of supply and demand.
In the major consumer basket categories, the food price index in Ukraine grew by 10.4% YoY in March and the utility service price index increased by 22% YoY. The main restraint on overall inflation was provided by the clothing price index, which fell by 5.0% YoY.
The high inflation number is expected to prompt the National Bank’s monetary policy board to raise the key refinancing rate at the meeting scheduled this week. The key rate decision will be announced on 2pm on Thursday (Apr 15). According to a summary of the previous monetary policy board meeting, there was concern that the National Bank’s inflation target of 4-6% is being overshot. The NBU also worried that the slow pace of the COVID vaccination campaign in Ukraine will affect the pace at which business activity, in particular investment activity, recovers. We assume that there will be a decision to increase the key rate from the current 6.5% to 7.0%. This will lead to an increase in yields for domestic UAH-denominated treasuries. In our view, the Finance Ministry will be forced to raise its offered yield for a 1-year bond from 10.75% to 11.25% and there will be a yield increase on the secondary market for the 1-year bonds from bid/ask of 11.9%/10.6% to 12.3%/11.0%. The wide corridor spread in quotes on the secondary market is an indication that local market players fear that offshore “non-resident” investors with large bond holdings could suddenly initiate a selling wave by trying to exit their positions amid the rising inflation pressure. 

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Dmitry Churin, Head of Research,