NBU expects inflation to slow by end of this year
The acceleration of inflation in Ukraine to 16.4% in annual terms was caused by three factors, the effect of which begins to weaken, so the National Bank of Ukraine (NBU) expects inflation to slow, Deputy NBU Governor Dmytro Solohub has said.
"This is a combination of three factors at once - the domestic situation on the tobacco market, the weather and the growth in exports, which affected four product groups. We assess which factors should be taken into account when deciding on monetary policy, and which the central bank should ignore," he said in an interview with Interfax-Ukraine.
According to him, core inflation, which can be managed by the central bank, has remained at 6-8% for one-and-a-half years, amounting to 7.7% in September.
"The largest was the contribution of raw food products and goods, services, the prices of which are regulated administratively. This is the problem for implementing inflation targeting, which we talked about. In a country with such a low level of income as in Ukraine, the share of food products in the consumer basket is always high, and the prices for them are volatile," Solohub said.
According to him, the National Bank does not dramatize this year's discrepancy between the inflation forecast it made earlier (9.1% in 2017), its target range (8% plus/minus 2 percentage points) and the current level of inflation.
"From the point of view of international experience and our economy, the failure of their (forecasts) is not something surprising, although it remains unpleasant... It is not about hitting the target, but rather about the task of forming expectations around a certain factor," he said.
Solohub recalled that the situation with inflationary expectations in Ukraine was gradually improving.
"Even despite the pace of growth of the main inflation index, it was clear that the anchoring of expectations is taking place," he said.
He said that the discrepancy between the forecast and the real value was not an excuse to give up inflation targeting.
"It's not that we choose between something good or bad. Just inflation targeting is the only acceptable regime, and there are no alternatives to it. We looked at everything and understood what problems might arise. We faced them this year," he said.
Speaking about the forecasted inflation slowdown, Solohub also recalled that last October consumer prices rose by 2.8% due to an increase in tariffs.
"It's hard to imagine that this figure will be higher this October, which means that inflation will go down in annual terms in October," Solohub said.
He reiterated that the NBU board would consider the current situation at a meeting on monetary policy on October 26, at which it will decide on the necessary monetary measures to influence it, updated forecasts for inflation and the timing of its return to the target range.