Ukraine’s Inflation Slowest In More Than Two Years

KIEV, Ukraine -- Ukraine’s inflation rate, Europe’s highest, declined in November for a fourth month as the recession curbed domestic consumption.

Ukraine’s inflation rate, Europe’s highest, declined in November for a fourth month.

The rate fell to 13.6 percent, the lowest since July 2007, from 14.1 percent in October, the Kiev-based state statistics committee said today in a statement on its Web site. The median estimate of eight economists in a Bloomberg survey was 13.7 percent. In the month, prices increased 1.1 percent.

The economic contraction, including a record annual 20.3 percent slump in the first quarter, is helping subdue inflation, which the government has been unable to push below 10 percent since 2003. The central bank has cut its key interest rate twice since June as the recession blunted price pressures.

“It’s a decent number as deflationary pressure in the economy outweighed the impact of loose fiscal policy,” said Oliver Weeks, a London-based economist at Morgan Stanley. “But it’s hard to get too optimistic given household natural gas prices will eventually have to rise sharply.”

The hryvnia strengthened to 7.9949 versus the dollar as of 2:03 p.m. in Kiev, compared with a close of 8.0045 on Dec. 4, Bloomberg data shows.

Utilities

Annual growth in utility prices declined to 16.1 percent in November from 22.3 percent the previous month, while the rise in transport costs fell to 20.9 percent from 22.2 percent, according to the committee. Food prices rose 10.3 percent, compared with 8.8 percent in October.

Ukraine depends on Russia for more than 50 percent of its gas needs. Russia has increased the price of gas Ukraine pays more than four times since 2006, while the cost for households has remained unchanged since the end of 2006.

Ukraine was to raise gas prices by 20 percent for households and for utilities that provide hot water and heating this autumn to meet a condition of a bailout loan from the International Monetary Fund. The unpopular increase was delayed ahead of January presidential elections.

“There is an inflation risk next year because sooner or later the authorities will have to increase gas prices for households,” said Andriy Nesteruk, an analyst at Kiev-based Phoenix Capital investment bank. “And it is not clear what monetary policy the central bank will have as we will have a new central banker after the presidential elections.”

Interest Rates

Inflation, which peaked at 31.1 percent in May 2008, slowed from February through May, allowing the central bank to cut the discount rate to 10.25 percent. The government wants rates to fall further to spur economic growth.

Output has been shrinking since the fourth quarter of last year as demand for exports such as steel and chemicals plunged, investments waned and the currency weakened. The IMF, which approved in November 2008 a $16.4 billion two-year loan for Ukraine to support banks and the currency, said on Nov. 4 the economy remains “highly fragile.”

The Washington-based lender estimates an average inflation rate of 14 percent this year and 9 percent in 2010.

Producer prices, an early indicator of inflation, increased 0.4 percent on the month in November, according to the statistics office. Annual producer prices rose 13.2 percent.

Source: Bloomberg

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