Consumer inflation results with 10.0% ytd in 2021, disinflation is on track

UKRAINE - In Brief 11 Jan 2022 by Dmytro Boyarchuk

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Consumer inflation ended the year with 10.0% ytd or 9.4% y/y. The result is in the middle between the NBU forecast (9.6% ytd or 9.3% y/y) and our own estimate (+10.3% ytd or +9.4% y/y). Food prices (+12.7% ytd) and transportation costs (+11.1% ytd) are responsible for 2/3 of consumer inflation through the year contributing 5.5 ppt and 1.2 ppt, respectively. Utilities grew only +13.6% ytd amid fixed natural gas prices and heating tariffs adding just 0.8 ppt to CPI increase. Alcohol and tobacco prices increased 9.2% ytd thus contributing 0.7 ppt to consumer inflation in 2021. CPI is apparently on disinflation track but the NBU turned hawkish amid Russian risks meaning that at the next meeting of the NBU Board the prime rate will either stay at the current level of 9.0% or will go up by extra 0.5 ppt. From the IMF report we now that prime rate will be above 8.5% at least till Q3 2022 .But by how much the NBU Board might increase the rate above 9.0% is an open question. We see that tightening moods dominate among central banks globally. We also observe the hryvnia gradual weakening at the start of January 2022. These developments might push the NBU Board for extra prime rate increase by 0.5 ppt on January 20th justifying the extra tightening with prevailing geopolitical tensions.