The rise in prices in Ukraine continues to pick up speed

Photo: Unian

After three months the steady escalation consumer prices continue to grow. As the State Statistics Service informed, in June the consumer prices grew by 12% compared to the same month in 2013 and by 11.3% since the beginning of the year. In May these indicators were 10.9% and 10.5% respectively. On average, over the first half of this year consumer prices grew by 5.8% compared to January-June 2013. However, the rapid growth in prices in the first half year does not mean it will stabilize in the second half. On the contrary, Ukrainians can expect the next wave of a rise in the cost of living in the remaining months of the year.

Exchange rate issue

The devaluation of the hryvnia, which sank by 45% to UAH 11.82/USD from January to the end of June, triggered the rise in prices, according to the National Bank of Ukraine.

Prior to rapid devaluation of hryvnia Capital forecast that the average mid-year inflation would be 2.3% and would increase to 3.8% by the end of the year. Now that the prices of imported products flew through the roof, one can forget about such forecasts. Indeed, Director of SP Advisors Vitaliy Vavryshchuk says not all producers and importers put the consequences of devaluation on the shoulders of consumers.

Among different types of imported products, the prices of fuel and medicine grew most. The price of fuel grew proportionally to the devaluation of the hryvnia. Today, the fuel price is 41.2% higher than a year ago and 43.6% higher than at the start of the year. Producers of pharmaceuticals for which consumers have to pay four times more than a year ago and 23.8% more than in the beginning of the year put more than half the difference in the exchange rate on the people’s pockets.

However, some manufacturers did not raise prices that correspond to devaluation, restraining their growth at the expense of reducing the margin, Vavryshchuk noted. For example, this applies to clothing and food products, the prices of which grew by 0.5% and 13.3% since the start of the year. These producers gave preference to set the increase in prices more evenly by the end of the year.

This means that the effect of devaluation will appear in the second half of the year. Specifically, the prices of imported clothing and footwear, domestically produced meat, eggs and dairy products for which grain is the main raw material, while the prices for it already grew by the same amount that the hryvnia devalued. “Devaluation of the hryvnia will provide around 11-13 percentage points of the 16% inflation at the end of the year,” Vavryshchuk calculated.

Roof over one’s head

If devaluation of the national currency of Ukraine has already partially had an effect on the consumer prices of consumer goods, the second critical factor has so far not been taken into account in the current prices of commodities and will determine inflation in the second half of the year. The matter is about a hike in housing utility rates that the government promised to the International Monetary Fund.

Over the past three months the Cabinet of Ministers increased the tariff of housing utilities twice – specifically, the price of gas and electricity in June. As a result, in June 2014 utility rates increased by 16% compared to the same month in 2013 and by 15.8% since the start of the year. The price of gas for household consumers grew by 62.8% and electricity – by 11.3%.

In July rates will increase for other utility services, specifically cold and hot water. According to the estimates of Head of the Analytical Department of Alfa-Bank Ukraine Oleksiy Blinov, the increase in utility rates will accelerate from 16% in June compared to the same month last year to more than 30% in July. As a result, the rise in consumer prices will be 12% in June and will reach 14% in July. After that it will slowly grow in the following months to the end of the year, the economist forecasts. On the whole, by the results of 2014 according to the forecast of Capital mid-year inflation will be 10.3% and by the end of the year – 16.4%.