Consumer inflation speeds up to 9.5% y/y in May

UKRAINE - In Brief 10 Jun 2021 by Dmytro Boyarchuk
In May inflation sped up to +1.3% m/m or +9.5% y/y from +0.7% m/m or +8.4% y/y in April. Stronger food prices (+1.7% m/m from +1.2% m/m in April) as well as jump in utilities’ tariffs (+3.9% m/m from +0.4% m/m in April) are the main drivers of consumer inflation with foods adding 0.74 ppt (out of 1.3% monthly increase) and utilities adding 0.3 ppt to CPI growth.Foodstuff prices strengthened primarily due to a 14.5% m/m jump in prices for fruits (due to cold spring) and a 6.8% m/m increase in prices for sunflower oil (export prices drive the tendency). Utilities went up in the back of relaxed limitations on natural gas tariffs: natural gas prices for households jumped by 14.6% m/m in May.Consumer inflation in May put on the desk two questions: should we now talk about CPI approaching 9% ceiling in 2021?should we expect the NBU raising prime rate on June 17 by extra 1 ppt?The answer for the first question is affirmative. With that strong CPI in May we should see really strong inflation slowdown in H2 2021 to stay near 8% levels which is not secured.As regards potential prime rate increase, this decision is not defined, I believe. Prices for fruits is a very temporal story and monetary policy cannot correct this in any way. An increase of natural gas prices also might be a temporal maneuver for the sake of next wire from the IMF. Gas tariffs have been increased for the summer season when natural gas is used only for cooking purposes and extra bill for households will not be large. But we will face absolutely different story when heating season starts and heating bills should reflect new reality. At that stage (October-November) we might see a U-turn in energy policy since...

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