Ukraine: Analysts Predict Inflation Could Hit 10.5% In 2011

KIEV, Ukraine -- Inflation in Ukraine may reach 10.5% in 2010, exceeding the government's forecast of 8.9% and the figure for 2010, when consumer prices rose by 9.1%, Ukrainian analysts believe.

Representatives of 18 banks and companies that participated in a monthly survey believe that in January 2011 the rise in prices accelerated on average to 1.3%, from 0.8% in December 2010.

"Inflation will become the main problem for the Ukrainian government in the first half of the year, or perhaps in the whole year. High oil prices have already led to a jump in the prices of petroleum products."

"And the expected introduction of import duties could raise retail gasoline prices on the domestic Ukrainian market by another nearly 20 percent. Tariffs for electricity, heat and other utilities are increasing simultaneously," managing partner at the Capital Times investment company Erik Naiman said.

It is worth noting that survey respondents are also more pessimistic than the government in their estimates of the foreign trade deficit and the current account.

But they said that the growing deficit currently posed no direct threat to the devaluation of the hryvnia, because it will be compensated for by forex inflows on the financial account, including funding from the country's key creditor - the International Monetary Fund.

"Despite the need to return this year a significant amount of external borrowing and the gradual growth of the foreign trade deficit, the hryvnia will most likely remain stable in 2011 and range within UAH 7.95-8.03 per U.S. dollar," believes Khreschatyk Bank CEO Dmytro Hrydzhuk.

Experts also believe that Kiev will manage to reach agreement with the IMF on the third tranche, although they do not exclude that the funds could be allocated by the end of the first half of 2011, rather than in March.

As Ukrinform reported, the National Bank of Ukraine recorded a sharp growth in the purchase of foreign currency by the public. Over the last four months of 2011, USD $6.1 billion has been withdrawn from the country's banking system, or over 80% of the outflow of foreign currency for the entire year 2010.

Source: Ukrinform