NBU has lowered its forecast for inflation due to the increase of the minimal wage

The Board of the National Bank of Ukraine (NBU) has decided to leave the discount rate unchanged at 14%, but has revised the inflation forecast for 2017, from 8% to 9.4%.

As explained in NBU, maintaining the discount rate due to the need to neutralize the inflationary risks to achieve the inflation target in 2017 – 2018.

At the same time, the inflation forecast for 2017 was revised from 8% to 9.1%.

“First of all, due to the increase in the minimum wage to 3200 UAH from the beginning of the year. This decision of the government will affect inflation both directly through the increase in consumer demand of the population, mainly for food products and the cost of production, and indirectly through inflation expectations of Ukrainians,” – said the press service of the NBU.

At the same time, according to the head of the NBU Valeria Gontareva, the situation with the nationalization of PrivatBank did not affect inflation.

The increase in consumer demand and production costs will generate additional pressure on the main components of inflation in 2017: as a result, core inflation will rise to 6.3% and inflation of raw foods – up to 7%, according to the NBU.

In addition, inflation in annual terms will remain high over the first three quarters due to the effect of statistical base. She’ll be back to a definite level only in the IV quarter of 2017, predicts the Bank.

“At the same time the national Bank does not consider it appropriate to apply the tools of monetary policy to bring the inflation forecast to 8% (the Central value of the target range). After all, it could lead to unnecessary volatility in market interest rates and inflation in the future, and to retard the growth of the economy, which is emerging from the crisis”, – said the NBU.

The inflation forecast 2018 remains unchanged at 6%.

Recall that consumer inflation slowed rapidly in 2016, up by 12.4% (from 43.3% in 2015), in line with forecasts of the National Bank. Thus, the national Bank reached its inflation target defined by the monetary policy Strategy for 2016-2020.