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Ukraine's inflation rate to exceed expected 7% in 2019

Author : Olexiy Doroshenko

Inflation in the consumer market in 2018 reached 9.8%, and core inflation amounted to 8.7%, - State Statistics Service
11:38, 14 January 2019

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Ukraine’s State Statistics Service has issued a report on inflation in 2018. Inflation in the consumer market in 2018 reached 9.8%, and core inflation amounted to 8.7%. In addition, if it turns out that the average salary in December last year exceeded 350 USD, then this will be a “swansong” of our government.

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I would rather attain from assessing these indicators. Many experts have already done it. I also wrote that inflation in a country with a large number of poor people and a small stratum of those who are doing well is quite conditional. It is interesting to compare the growing stratification in Ukraine with the United States. The US has demonstrated impressive economic growth since the 2008 Great Recession. But the data show that incomes of 90% of the population fell by 15% in 2009-2012, while the incomes of the 10% richest people grew immediately by 120%. That is, on average, the country is doing well. Our situation is quite similar.

The IMF also voiced its forecast; inflation in Ukraine will be 7% this year. So let us look at the probability of such an indicator. Any complex question consists of the simple ones. The consumer inflation seems to be an engine of inflation in our country. In the past few years, the so-called “social goods” were the reason for this; they grew at a high rate. And even the National Bank could not do anything as it does not have any tools to influence products price.

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The State Statistics Service assures that for the first half of 2018, Ukrainians spent 48% of their income on food, 3% on cigarettes and alcohol, and 18% on public utilities. In general, it is almost 70% of household spending. In 2019, products will go up at a slower pace than utilities. If hryvnia remains stable for the whole year, imported products would rise in price less than the level of inflation does. However, the imports today account for up to 15% of what we buy, and the other products are domestic. Their price would increase from 8 to 18%, and some other goods would become even more expensive.

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Therefore, the price increase of products would be lower than in previous years, still, it would exceed 10%. Due to the increase in excise taxes, the cigarettes would be worth a quarter that a year from now. The first stage of the utility growth is already taking place. In general, payments for apartments and houses would grow by more than 20% by the end of the year. If we take into consideration all these things, we will see, 7% of inflation is almost impossible. Of course, there is a way, but it is too radical: a severe reduction in household income, namely, wages, pensions, and social benefits. This is due to another decline in purchasing power, i.e. demand will affect the decline in the offer price, that is, the cost of products. But this cannot affect the market for excisable goods and utilities. Actually, why should we build a state, where citizens do not want to live? Low domestic demand negatively influences Ukrainian business, which considers its prospects connected with exports only.

 

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Therefore, under many conditions, namely, stable hryvnia, our deals with the external borrowers, the absence of a significant aggravation of hostilities, the global financial crisis, inflation will continue to decline, but the figures of 7% for this year and 5% for 2020 look like a desire, not the reality.

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