Inflation in Ukraine slowed in February, but it doesn't necessarily mean anything

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State Statistics Committee of Ukraine has released information on consumer prices for February 2018. Last month, inflation on the consumer market was 0.9%, compared with the previous month. Hence, in February there was a slowdown in the prices growth rates in the consumer market (compared to January, when this figure was 1.5%). However, the rate of price increase in the consumer market of Ukraine is growing fast. For two months of 2018, consumer inflation reached 2.4%.
Compared to the previous month, an insignificant slowdown in inflation was registered on an annual basis, from 14.1% (January 2018 to January 2017) to 14% (February 2018 to February 2017). Core inflation in February 2018 was 0.6%, compared with the previous month, 9.7% compared to February 2017, and 1.3% for January-February of this year.
If we compare with January of this year, the prices for the following groups of goods and services have sharply increased in February:
- transport - 1.5% (this was mainly due to an increase in the cost of travel in road transport by 2.7% and a rise in fuel and lubrication prices by 2.2%);
- alcoholic beverages and tobacco products - 1.4% (alcoholic beverages increased by 0.7%, tobacco products - by 2.1%);
- household goods, household appliances, and maintenance of housing - 1.3%;

- healthcare - 1.1% (prices for outpatient services increased by 1.6%, for pharmaceutical products, medical goods, and equipment - by 1%);
- food and non-alcoholic beverages - 1% (fruits - 6.8%, fish and fish products - 2.4%, bread prices - 1.6%, vegetables - 1.5% , eggs - 1.6%, and sugar - 0.7%).
- housing, water, electricity, gas, and other fuels - by 0.4% (that is, prices remained at the same level as in January 2018).
During this period, the prices for clothes decreased by 2.8%.
Prices for January-February 2018 have increased by 14.1%, compared with the same period last year. The prices for alcoholic beverages and tobacco products have increased by 20.4%. The increase in prices for food and non-alcoholic beverages amounted to 17.6%, for restaurants and hotels - 16.9%, for transport - 16.8%. Education services went up by 15.3%.
If we talk about individual goods and services, in January-February 2018, compared to the same period last year, the prices for:
- maintenance of houses and adjacent territories - 52.4%;
- fruit - 41.6%;
- eggs - 38.3%;
- electricity - 28.1%;
- meat and meat products - 28.1%;
- fuel and oils - 21.9%;
- road passenger transport - 21.8%;
- water supply - 21,7%;
- milk - 19.7%;
- bread - 19.3%.

Consequently, there is a serious increase in prices for goods and services belonging to socially important groups. This negatively affects the standard of living of Ukrainian citizens. The government, first of all, needs to pay attention to this and take urgent measures to prevent price increases.
The only good, the price for which has decreased for the first two months of this year (by 10.6) is sugar.
Thus, the general situation with the dynamics of consumer prices in Ukraine during the last six months remains difficult, even though the basic inflation for this period tends to decline.
National Bank’s impact on inflation does not have a completely positive effect. The reasons for this are some factors within the competence of the NBU, as well as factors beyond its competence.
Here are factors that cause high consumer inflation:
- a high level of monopolization of the economy, which does not contribute to price stabilization due to low competition;
- imported inflation (primarily due to rising world oil prices);
- transferring the effect of the discount rate increase on the consumer prices;
- effect of the seasonal hryvnia devaluation (December 2017 - January 2018);
- significant increase in production costs.

Most likely, the priority goal of the NBU – reducing consumer inflation to 6 ± 2 percentage points this year (this is determined by the Fundamental Principles of Monetary Policy for 2018 and the medium term) would not be achieved. Council of the National Bank plans to consider the issue of compliance of the Basic Principles of Monetary Policy for 2018 with the fundamental requirements of the current socio-economic state of Ukraine.
It is advisable to introduce a reduced VAT rate on food products. Following the European practice, we should introduce the maximum trade markup (the maximum margin for products should not exceed 15% of the producer price, for ordinary goods - not more than 30%, for imported goods - not more than 30% of the price).
It is necessary to pursue a policy aimed at increasing competition, as well as reform the housing and communal sector. This would help to prevent the growth of tariffs, not conditioned by the improvement of the quality of services. In addition, it is necessary to carry out a structural reorganization of the economy in order to reduce its dependence on foreign markets. Such measures are aimed not only at reducing inflation but also at ensuring conditions for long-term economic growth.

Analyzing the consequences of the government's decision to abolish the regulation of food prices, I consider it premature because in the conditions of the monopolized economy of Ukraine it led to an increase in the rate of inflation. We should resume the work of the State price administration, which would control the growth of consumer prices and pricing, to which the market now has a one-sided specific influence.
The impact of the NBU on the level of inflation is significant, but it has no determining value. Money relations are connected with the other spheres of economic life. Measures taken within the framework of the National Bank's capabilities, without other comprehensive measures, would not lead to the desired effect. The increase in the refinancing rate (and this is the main tool of the National Bank in the fight against inflation) will not ensure inflation reduction in the conditions of the monopolistic market structure because monopoly producers support the discrepancy between aggregate demand and supply in order to control the price formation.
Inflation in Ukraine is not a monetary phenomenon only. In general, inflation is a multifactorial phenomenon. If the components are segregated into monetary and non-monetary components, then it is the non-monetary ones that will probably prove to be larger. It is impossible to neglect the contribution of the non-monetary components to price increases. For example, the tariffs of natural monopolies and infrastructural monopolies affect the level of prices in our country. The cost of energy resources (which are mainly imported) also influences the prices. Can the National Bank freeze the growth in tariffs of domestic infrastructure monopolies or influence world prices for oil, gas or coal[/img]
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Factors, which are not under the control of the NBU, have a strong influence on the growth of the consumer prices. Apart from the abolition of food price regulation, these are the growth of administratively regulated tariffs for housing and communal services, an increase in the prices of producers of industrial and agricultural products. In order to reduce the inflation, the National Bank is forced to raise the discount rate. But during the period of economic recovery from the crisis, this might result in an increase in the cost of loans and a decrease in the volume of lending. The positive impact of an increase in the discount rate in terms of supply inflation is limited.
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