Inflation is not according to plan: how and why to change the welfare of Ukrainians in 2017

In Ukraine accelerated the pace of price growth. Due to the growth in utility tariffs, freezing and rising food inflation in may reached a record this year of mark. The national Bank has revised its forecast on inflation rate for the year. The website “Today” figured out how to change the welfare of Ukrainians this year and what will happen with inflation.

Why and how prices rise

Over the past year (from may 2016 to may 2017) the prices in Ukraine grew by 13.5%, according to the state statistics service. This is higher than earlier predicted the national Bank. The reasons for this growth are several: food getting more expensive – old crop ending and the new is traditionally more expensive, may have increased the tariffs for hot and cold water, rose cigarettes in connection with the problems with distribution. “The reasons for the growth of food inflation lie in cold spring that led to higher prices of fresh vegetables and fruits and also due to the rise in food prices, which form the so-called “borscheva set”, – says the Deputy Director of analytical Department of “Alpari” Natalia Milchakova.

“The reasons for the growth of food inflation lie in cold spring that led to higher prices of fresh vegetables and fruits and also due to the rise in food prices, which form the so-called “borscheva set”, – says Natalia Milchakova.

Photo: Pixabay

“The current dynamics of the consumer price index and its components, despite the lower-than-expected core inflation, testifies to the increasing inflation risks by year-end 2017”, – noted in a press-service of the national Bank.

Since the beginning of this year, the NBU introduced a policy of inflation targeting. The Central Bank influences the growth of prices, using the tools of monetary policy. Thus, the national Bank may change the interest rate, and are dependent on the interest rates on loans and deposits in commercial banks. The decrease in the discount rate leads to higher inflation and the fall – on the contrary.

There are positive factors – the hryvnia for several months strengthened that allows you to hold or even reduce prices for some imports, also stabilized the price of fuel (they also depend on the exchange rate). For the year, assuming the NBU, inflation will be higher than previously predicted to 9.1%. The Ministry of economic development and trade suggest that the price at the end of this year will grow by 11.2%.

High inflation – it is normal for a developing economy, the Executive Director of the International Fund blazer Oleg Ustenko. In the advanced economies, prices are rising within an average of one to two percent per year. So, during the global crisis of 2008 in Ukraine the rate of inflation reached 22.3 per cent, and in the countries of the European Union, only 3.4%. At the end of last year in the EU rose by 1.66%, and in Ukraine – 12.4%.

“Various agencies in Ukraine predicts inflation in consumer prices in the country at the level of 9 to 12.9% by the end of 2017, which is equal to 2016. Recall that in 2016, the inflation in Ukraine amounted to 12.4%. We believe that by the end of this year inflation in Ukraine may be reduced to 11-12%. On the reduction of inflation will have a positive impact stabilization of the hryvnia to the dollar,” – says the analyst of “Alpari”.

What this means to Ukrainians

If the rate of income growth ahead of inflation, says Director of the analytical Department of Concorde Capital Oleksandr Parashchiy, rising prices are not terrible. “It’s not how prices are rising, and as the growing purchasing power of the population. In any inflation if the income of the population grows faster, inflation is not terrible. We know that the national Bank has stated that inflation will be 10% and this is the main reference point for all, including for the Bank, which provides loans and for the government. If we manage to maintain inflation below, this is positive,” – said the analyst.

According to the law, social standards, including minimum wages and pensions should grow by no less than the rate of inflation. However, in 2014 and 2015 the government has decided to freeze the indexation due to the difficult economic situation. In 2014, prices in Ukraine increased by 86.8% of the minimum pension to 40%, and the minimum wage to 138,9%. The rising incomes of Ukrainians working ahead of inflation, while Ukrainian pensioners dramatically impoverished.

This year social standards (except minimum wages) plan to increase 10.2%, if, for example, prices for the same period will grow by 11.2% Ukrainians since the beginning of this year will be the poorer 1%. However, the level of social standards shows the welfare of the poorest Ukrainians – pensioners and those who earn minimal.

“In the private sector wages are rising by the laws of the market. Of course, the vast majority of surveys including conducting a staffing Agency, show that Ukrainians believe that they have become poorer. But the average salary of 2014 has grown at least twice. This suggests that the business is active state responds to new economic realities,” says HR expert Alexander Plakhotnik.

Will the Ukrainians wealthier in 2017

According to Prime Minister Vladimir Groisman, the average salary in the end of this year will reach seven thousand hryvnia, its growth will be 16%. This will allow not only to compensate for inflation, but for a few percent increase in the welfare of Ukrainians. In addition, more than five million Ukrainians from October this year will get “modernized” the pension (if the pension reform will support in the Parliament).

As reported “Today” source in the Ministry, after the “modernization”, a raise of more than 1000 UAH, will receive 1.1 million pensioners. Increase from 900 to 1000 hryvnia unable to 487 thousand pensioners, from 700 to 800 UAH 460 thousand. The rest (and more than 3.5 million Ukrainians) the pension will rise from 50 to 700 hryvnia.

Photo: Pixabay

In Alpari are sure that when double-digit inflation, the growth of wages and social standards to compensate for inflation is still insufficient. For the stable growth of the wage and standard of living, stable GDP growth and production. And the cumulative (accumulated) the fall of Ukraine’s GDP in the last 3 years was 14%.

“To the average annual hryvnia exchange rate returned to pre-crisis level, and secondly to the tendency of 2016 to growth of GDP and industrial production. In this case, we can expect Ukraine to 2019-2020 will be able to restore revenues to pre-crisis level”, – says Natalia Milchakova.